1、英文字符15700中文5000原文 ： Dividend policy, signaling and free cash flow: an integrated approach Richard Fairchild PurposeScholars have examined the importance of a firm's dividend policy through two competing paradigms: the signaling hypothesis and the free cash-flow hypothesis. It has been argu
2、ed that our understanding of dividend policy is hindered by the lack of a model that integrates the two hypotheses. The purpose of this paper is to address this by developing a theoretical dividend model that combines the signaling and free cash-flow motives. The objective of the analysis is to shed
3、 light on the complex relationship between dividend policy, managerial incentives and firm value. Design/methodology/approachIn order to consider the complex nature of dividend policy, a dividend signaling game is developed, in which managers possess more information than investors about the quality
4、 of the firm (asymmetric information), and may invest in value-reducing projects (moral hazard). Hence, the model combines signaling and free cash-flow motives for dividends. Furthermore, managerial communication and reputation effects are incorporated into the model. FindingsOf particular interest
5、is the case where a firm may need to cut dividends in order to invest in a new value-creating project, but where the firm will be punished by the market, since investors are behaviourally conditioned to believe that dividend cuts are bad news. This may result in firms refusing to cut dividends, henc
6、e passing up good projects. This paper demonstrates that managerial communication to investors about the reasons for the dividend cut, supported by managerial reputation effects, may mitigate this problem. Real world examples are provided to illustrate the complexity of dividend policy. Originality/
7、value This work has been inspired by, and develops that of Fuller and Taker, and Fuller and Blab, which considers the signaling and free cash-flow motives for dividends. Whereas those authors consider the case where firms only have new negative net present value (NPV) projects available (so that div
8、idend increases provide unambiguously positive signals to the market in both the signaling and free cash-flow cases), in this paper's model, the signals may be ambiguous, since firms may need to cut dividends to take positive NPV projects. Hence, the model assists in understanding the complexity
9、 of dividend policy. Introduction Nearly 50 years after Miller and Modigliani's (1961) famous dividend irrelevance theorem, academics and practitioners still have little understanding of dividend policy and its effect on firm value. Indeed, Black (1976) observed, The harder we look at the divide
10、nd picture, the more it seems like a puzzle, with pieces that just don't fit together. In this paper, we develop a dividend signaling model that attempts to analyses the various factors that affect dividend policy and firm value. According to Miller and Modigliani's (1961) theorem, the value
11、 of the firm is unaffected by its dividend policy in a world of perfect market conditions. Two major assumptions driving the MM irrelevance theorem were that: 1. A firm's management is purely interested in maximizing share-holder value (there are no agency problems). 2. Corporate insiders
12、and outsiders share the same information about the firm's operations and prospects (the symmetric information assumption). Subsequent theoretical research has analyzed the effects of incorporating asymmetric information and agency problems into the firm's dividend decision. This result
13、ed in two competing approaches； the dividend signaling hypothesis, and the excess cash hypothesis. Our dividend model incorporates both approaches. The signaling hypothesis states that under asymmetric information between managers and investors, dividend policy may provide signals regarding the firm
14、's current performance and future prospects. The free cash-flow hypothesis (also known as the excess-cash hypothesis) states that dividend policies address agency problems between managers and outside investors (for example Easterbrook, 1984； Jensen, 1986； Fluck, 1995). In particular, the agency
15、 problem in Jensen's (1986) analysis arises from an empire building manager's incentives to invest in negative net present value (NPV) projects. Dividends alleviate this problem by reducing the free cash flow available to the manager. As noted by Fuller and Thakor (2002), both of these hypot
16、heses (signaling and free cash flow) support much (but not all) of the empirical evidence that dividend increases (decreases) are good (bad) news, causing stock price increases (decreases). Perhaps the reason why a solution to Black's (1976) dividend puzzle remains so elusive is that we lack an
17、integrated theory that incorporates both the signaling and free cash-flow motivations for dividends (Fuller and Thakor 2002； Fuller and Blau, 2010). Fuller and Thakor (2002) sketch the first such integrated model. We build on their work by developing a dividend model that incorporates both asymmetri
18、c information and free cash-flow problems. Particularly, we consider a dual role for dividends. Dividends may provide a signal of current income to investors (hence the manager is motivated to choose a high dividend to provide a positive signal). However, in our analysis, a new project is available
19、to the firm. If the firm wishes to invest in this project, it must get the funds from current income. Hence, in addition to the current income-signaling role, the level of dividends may also affect the manager's ability to invest in the new project. Hence, the manager may wish to cut dividends (
20、to take a good, value-adding project), or he may wish to payout high dividends (to reduce the free cash flow in order to commit not to take a bad, value-reducing project). Our model contributes to Fuller and Thakor's (FT 2002) analysis in the following ways. First, we develop the analysis, and d
21、erive the equilibrium of the dividend game, in a formal and rigorous manner. Second, FT only considers the possibility that a negative NPV project exists. Hence, they focus on Jensen's (1986) free cash-flow problem. In contrast, we consider the possibility that the project may have a negative or
22、 positive NPV. This enables us to consider the following under-researched area. Although the majority of theoretical and empirical work suggests that the relationship between dividends and share price is positive (dividend increases are good news), Wooldridge and Ghosh (1998) have suggested that, when a firm has strong growth opportunities available, dividend cuts may not always be bad news. Conversely, dividend increases may be bad news. For example, Allen and Michaely (2002) argue, However, we note that with asymmetric information, dividends can also be viewed
