Dividend Policy and Reputation |
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| Authors: | Roland,Gillet ,Marc-André ,Lapointe Philippe,Raimbourg |
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| Affiliation: | The first author is Professor of Finance, UniversitéParis 1 Panthéon –Sorbonne, France, and UniversitéLibre de Bruxelles, Solvay Business School. The second author is Professor of Finance, Universitéde Sherbrooke, Québec, Canada. The third author is Professor of Finance, UniversitéParis 1 Panthéon –Sorbonne, France, and ESCP-EAP Paris. They would like to thank the Fondation de l'Universitéde Sherbrooke and SSHRC of Canada for their financial support, the professors and participants of RSAEM (UniversitéLibre de Bruxelles), CREFIB-PRISM (UniversitéParis 1 Panthéon-Sorbonne) and CLAREE (Universitéde Lille 1) for their invaluable advice and comments. |
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| Abstract: | Abstract: We examine the role of reputation when firms use dividends to signal their profitability. We analyze a signaling model in which reputation plays no role in equilibrium. We then show that taking reputation into account as a link between sequential dividend decisions makes it possible to endogenize signaling costs and obtain a separating equilibrium. Lastly, we use the reversibility hypothesis and assume that in each period, managers can reverse their choices in terms of dividend distribution. We find that in most cases, the signaling equilibrium becomes unstable, causing any dividend signaling policy to become difficult to implement. |
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| Keywords: | dividend policy investment risk signaling equilibrium reputation |
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