THE SIGNALING HYPOTHESIS: EVIDENCE FROM THE NAIROBI SECURITIES EXCHANGE

This study investigates the signaling hypothesis by testing the displacement property of dividends. The study uses Ohlson (1995; 2001) model and follows Hand and Landsman (2005) approach. The study however varies the methodology by using pooled Time Series Cross Section data and Panel Corrected Stan...

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Bibliographic Details
Published inJournal of business studies quarterly Vol. 3; no. 4; p. 105
Main Authors Waweru, Kennedy Munyua, Pokhariyal, Ganesh P, Mwaura, Muroki F
Format Journal Article
LanguageEnglish
Published Antioch Journal of Business Studies Quarterly (JBSQ) 01.06.2012
Subjects
Asymmetry
Book value
Cash flow
Control theory
Design
Dividend policy
Dividends
Hypotheses
Net present value
Profitability
Profits
Research design
Residuals
Stock exchanges
Stock prices
Studies
Time series
Nairobi Kenya
Kenya
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Summary:This study investigates the signaling hypothesis by testing the displacement property of dividends. The study uses Ohlson (1995; 2001) model and follows Hand and Landsman (2005) approach. The study however varies the methodology by using pooled Time Series Cross Section data and Panel Corrected Standard Error estimation and also control for size to take care of scale effects. The study's findings provide further empirical evidence that dividends are used as signals about future earnings prospects of the firm. After following Thakor (2003) approach in testing for the free cashflow hypothesis, the study's results do not provide evidence in favour of the cashflow hypothesis it is therefore ruled out. The study's results shed further insights on the controversy regarding the information content of dividend changes about future profitability. [PUBLICATION ABSTRACT]
ISSN:2152-1034
2156-8626