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The Dividend Initiation Decision of Newly Public Firms: Some Evidence on Signaling with Dividends

Published online by Cambridge University Press:  20 January 2012

Jayant R. Kale ,
Omesh Kini  and
Janet D. Payne
Jayant R. Kale
Affiliation:
Robinson College of Business, Georgia State University, PO Box 3989, Atlanta, GA 30303, and Indian Institute of Management–Bangalore. jkale@gsu.edu
Omesh Kini
Affiliation:
Robinson College of Business, Georgia State University, PO Box 3989, Atlanta, GA 30303. okini@gsu.edu
Janet D. Payne
Affiliation:
McCoy College of Business, Texas State University, San Marcos, TX 78666. jpayne@txstate.edu
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Abstract

We track the dividend initiation (DI) decisions from a sample of 6,588 firms that went public during the period 1979–2005 and find that 873 of them initiated dividends. Our primary objective is to determine whether information signaling can explain the DI decision. We find that variables suggested by the dividend-signaling models of John and Williams (1985) and Allen, Bernardo, and Welch (2000) are significant determinants of the DI decision and the associated announcement-period stock price effect. We also find support for the residual, agency, tax, clientele, transaction costs, catering, and life-cycle explanations of dividend policy.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 2 , April 2012 , pp. 365 - 396
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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