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Asymmetric Information, Dividends, and External Financing

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  • Anderson, Michael
  • Kanatas, George

Abstract

We analyze a signaling game where firms' dividend announcements convey private information but the possible need to externally finance the dividend creates an incentive conflict between inside and outside investors. Consequently, the attempt to address an adverse selection problem creates (or exacerbates) moral hazard. The interaction of these two imperfect information problems resluts in equilibria that may be separating or pooling. Additionally, the equilibrium may be only partially separating, i.e., firms are incompletely identified. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Anderson, Michael & Kanatas, George, 1995. "Asymmetric Information, Dividends, and External Financing," Review of Quantitative Finance and Accounting, Springer, vol. 5(3), pages 271-290, September.
    • Handle: RePEc:kap:rqfnac:v:5:y:1995:i:3:p:271-90
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    Cited by:

    1. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros, 2015. "Dividend policy, managerial ownership and debt financing: A non-parametric perspective," European Journal of Operational Research, Elsevier, vol. 241(3), pages 783-795.
    2. Chin-Chen Chien & Cheng-Few Lee & She Chih Chiu, 2016. "Does Corporate Governance Curb Managers’ Opportunistic Behavior of Exploiting Inside Information for Early Exercise of Executive Stock Options?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-22, March.
    3. Joanna Golden & Kenneth Zheng, 2022. "Cost management and corporate payout decisions," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 911-938, April.

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