Dividends, uncertainty, and underwriting costs under asymmetric information

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


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; finance
Subject(s): Finance
Date Deposited: 26 Feb 2012 12:06
Last Modified: 25 Sep 2018 08:50
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/1158

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