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This paper examines if there is any change in investors’ behavior toward dividend payout policy of the US corporations after the breakout of the global financial crisis in 2007-2008. In order to do so, dividend signaling theory is adopted as the main theme where we build econometrical models describing the influence of dividend payment on market’s expectation. Unlike most of the previous studies which use either price-dividend or dividend-earnings type tests to provide empirical evidence for the signaling theory, this paper attempts to perform a new type of test called present value of growth options (PVGO)-dividend type test. It is inspired by the recent development of real options as an investment valuation tool. This paper is in our opinion the very first to examine the implications of the signalling models in the context of the relation between dividend and PVGO using real options technique. Our result shows that in the market flooded with information like the US financial market, dividend no longer plays a significant role in delivering additional valuable information to investors. This outcome is highly inconsistent with dividend signaling theory.

The Impact of Dividend Payment on Market’s Expectation after the Global Crisis