Dividend Signaling
Definition of 'Dividend Signaling'A theory that suggests company announcements of an increase in dividend payouts act as an indicator of the firm possessing strong future prospects. The rationale behind dividend signaling models stems from game theory. A manager who has good investment opportunities is more likely to "signal" than one who doesn't because it is in his or her best interest to do so. |
|
Investopedia explains 'Dividend Signaling'Over the years the concept that dividend signaling can predict positive future performance has been a hotly contested subject. Many studies have been done to see if the markets reaction to a "signal" is significant enough to support this theory. For the most part, the tests have shown that dividend signaling does occur when companies either increase or decrease the amount of dividends they will be paying out.The theory of dividend signaling is also a key concept used by proponents of inefficient markets. |
Related Definitions
Articles Of Interest
-
An Introduction To Behavioral Finance
Curious about how emotions and biases affect the market? Find some useful insight here. -
Understanding Investor Behavior
Discover how some strange human tendencies can play out in the market, posing the question: are we really rational? -
How Dividends Work For Investors
Find out how a company can put its profits directly into your hands. -
Leading Economic Indicators Predict Market Trends
Leading indicators help investors to predict and react to where the market is headed. -
Women And Investing: It's A Style Thing
You don't have to be a boy or act like a boy to win. In fact, doing the opposite could be better for your financial health. -
5 ETFs Flaws You Shouldn't Overlook
Despite their popularity, exchange traded funds have some drawbacks that investors should know about. -
Great Company Or Growing Industry?
Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth. -
Using The Price-To-Book Ratio To Evaluate Companies
The P/B ratio can be an easy way to determine a company's value, but it isn't magic! -
Build A Model Portfolio With Style Investing
This sophisticated approach will add flair to your returns. -
Prisoner's Dilemma
Learn more about this classic game theory scenario.