An Examination of the Free Cash Flow and Information/Signaling Hypotheses Using Unexpected Dividend Changes Inferred from Option Prices: The Case of Regular Dividend Increases

• Main Authors: Kuei-Chin Fu, 傅桂欽
• Other Authors: Sheng-Syan Chen
• Format: Others
• Language: en_US
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/06621686181210180727

博士 === 國立臺灣大學 === 財務金融學研究所 === 99 === This paper adopts the Bar-Yosef/Sarig method to measure unexpected dividend changes in testing the free cash flow and information/signaling hypotheses. The empirical findings reveal the following: (1) Announcement period abnormal returns are positively related to unexpected dividend changes. (2) The association between announcement period abnormal returns and the cash level is significantly positive for low q firms. (3) The positive association between announcement period abnormal returns and the cash level is stronger in low q than in high q firms for most regressions. (4) Low q firms reduce their capital and research and development (R&D) expenditures during the four fiscal years following dividend increase announcements. Our findings are consistent with the free cash flow hypothesis.