Signaling with dividends and share repurchases: a choice between deterministic and stochastic cash disbursements |
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Authors: | Hausch, DB Seward, JK |
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Affiliation: | 1 Graduate School of Business, University of Wisconsin-Madison, Madison, WI 53706, USA 2 Dartmouth College, USA z Corresponding author |
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Abstract: | We study firms signaling with cash disbursements and show thatthe choice of a deterministic or a stochastic disbursement dependson a property of the firm's production function that is analogousto absolute risk aversion for a utility function. With decreasing(increasing) absolute risk aversion, the high-quality firm prefersto distinguish itself from the low-quality firm with a stochastic(deterministic) outlay. We then study in detail two common formsof corporate cash distributions: dividends, a deterministicdisbursement, and share repurchases, a stochastic disbursement. |
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