Dividends, uncertainty, and underwriting costs under asymmetric information

Noe, Thomas and Kale, Jayant R (1990) Dividends, uncertainty, and underwriting costs under asymmetric information. The Journal of Financial Research, 13 (4). pp. 265-277.

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Abstract

This paper presents a two-period model in which dividends act as a signal of the stability of the firm's future cash flows. It is demonstrated that firms with more stable future cash flows pay a higher dividend. Dividends are a credible signal because the promise of a higher dividend, ceteris paribus, increases the probability that the firm will have to issue equity and pay underwriting costs. Empirically testable implications of the model relating to the cross-sectional determinants of the level of dividends are also discussed.

Item Type: Article
Keywords: Dividends; Cash flow; Insurance; Economic models; Uncertainty; Asymmetric synthesis
Subject(s): Finance
Centre: Faculty of Finance
Date Deposited: 26 Feb 2012 12:06
Last Modified: 23 Oct 2015 14:06
URI: http://eureka.sbs.ox.ac.uk/id/eprint/1158

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