Signaling Safety

Signaling Safety

Roni Michaely, Stefano Rossi, Michael Weber

Series number :

Serial Number: 

Date posted :

January 31 2020

Last revised :

February 12 2020
SSRN Share


  • dividends • 
  • payout policy • 
  • Cash-Flow Volatility • 
  • Signaling Model

Contrary to signaling models’ central predictions, changes in the level of cash flows do not empirically follow changes in dividends.

We use the Campbell (1991) decomposition to construct cash-flow and discount-rate news from returns and find the following: (1) Both dividend changes and repurchase announcements signal changes in cash-flow volatility (in opposite direction); (2) larger cash-flow volatility changes come with larger announcement returns; and (3) neither discount-rate news, nor the level of cash-flow news, nor total stock return volatility change following dividend changes. We conclude cash-flow news - and not discount-rate news - drive payout policy, and payout policy conveys information about future cash-flow volatility.


Real name:
Michael Weber