REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability |
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Authors: | Qiang Li Hua Sun Seow Eng Ong |
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Institution: | (1) Center for Urban Economics and Real Estate, Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC, V6T 1Z2, Canada;(2) Department of Real Estate, School of Design and Environment, National University of Singapore, Singapore, 117566, Singapore |
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Abstract: | Recent work on stock splits have attempted to relate the information value associated with splits with that from dividends
signaling. This paper extends this genre of research by evaluating the issue of dividend predictability using REIT data where
the self-selection issue associated with dividend payment is minimized. The use of REIT data also eliminates the “differential
expectations” effect for non-dividend paying firms, thus rendering a more robust test of the information substitutability
hypothesis postulated by Nayak and Prabhala (2001). To the extent that stock splits are signals of future cash flows, we further examine the question of leverage predictability
associated with REIT splits, particularly for highly levered firms. We find that REITs that use dividend changes as a signaling
mechanism prior to splits have smaller price responses to the private information revealed by splits than those that do not
provide such signals, consistent with the notion that dividends and splits are indeed information substitutes. Further, REIT
splits provide useful information about future dividend and leverage changes. |
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Keywords: | REIT split Dividend Leverage Signaling Conditional event study |
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