Acknowledgments: We would like to thank Kevin Krieger and seminar participants at the University of Houston, the University of Iowa, Texas A&M University, Korea Advanced Institute of Science and Technology, Ewha University, and Florida State University for useful comments. This research was supported by WCU (World Class University) program through the National Research Foundation of Korea funded by the Ministry of Education, Science and Technology (R32-10240).
Information Content of Dividends and Share Repurchases*
Article first published online: 15 AUG 2011
© 2011 Korean Securities Association
Asia-Pacific Journal of Financial Studies
Volume 40, Issue 4, pages 517–549, August 2011
How to Cite
Ha, I., Hong, G. and Lee, B. S. (2011), Information Content of Dividends and Share Repurchases. Asia-Pacific Journal of Financial Studies, 40: 517–549. doi: 10.1111/j.2041-6156.2011.01048.x
- Issue published online: 15 AUG 2011
- Article first published online: 15 AUG 2011
- Received 18 May 2011; Accepted 2 June 2011
- Share repurchases;
- Broad dividends;
- Information asymmetry
Share repurchases have become a popular means of paying out cash to shareholders, and one of their often cited motives is their signaling of undervaluation of repurchasing firms. Dividends are often viewed as signaling future earnings. However, in theory, signaling of current undervaluation should be closely related to signaling of future cash flows. In the present study, it is found that broad dividends, which include both narrow cash dividends and share repurchase, signal both current undervaluation and future cash flows. This suggests that dividends and share repurchases are complementary in their signaling role by paying out permanent and temporary earnings, respectively.