Premium
A TEST OF THE EASTERBROOK HYPOTHESIS REGARDING DIVIDEND PAYMENTS AND AGENCY COSTS
Author(s) -
Born Jeffery A.,
Rimbey James N.
Publication year - 1993
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1993.tb00144.x
Subject(s) - dividend , agency cost , agency (philosophy) , payment , monetary economics , economics , value (mathematics) , dividend policy , business , shareholder , finance , corporate governance , philosophy , epistemology , machine learning , computer science
Easterbrook (1984) argues that dividend payments may be an ambiguous signal unless the market can distinguish growing firms from disinvesting firms. Shares of growing firms that announce both financing and dividend increases are predicted to rise more in value than shares of firms announcing a dividend increase alone. We examine the relation between prior financing activity and the market response to initial dividends and find evidence consistent with the Easterbrook agency cost model.