The Importance of Being Prudent: Leverage and the Informational Content of Dividends by Simas Kučinskas, University of Amsterdam.
Please register by sending an email to [email protected] with your full name, surname and university/work-place until 5th of April, 13:00.
Seminar language: English.
This paper studies how the informational content of dividends varies with leverage. While higher dividends convey good news at low levels of leverage, dividends become a bad signal when leverage is high. Quantitatively, a dividend increase is predicted to have a positive stock price reaction for the median U.S. firm, but the effect is reversed at higher levels of leverage. The same switch occurs for other corporate actions, including debt buybacks, debt issuance and risk taking. The results highlight the importance of studying the determinants of firms’ financial decisions jointly.