Work detail

Signaling Effect of Dividends

Author: Bc. Jan Strnad
Year: 2013 - summer
Work type: Bachelors
Language: Czech
Pages: 61
Awards and prizes:
Abstract: This thesis deals with the question of whether there is a positive relationship between dividend and
firm’s value. Thesis focuses on the signaling theory which states that dividends convey information from
managers about the future performance of the company to investors. The first part covers theoretical
background for determining the optimal level of dividends. It focuses on description of processes how
firm’s future profitability may be communicated via dividends and critical assessment of signaling
models, particularly in respect to their assumptions and the relationship between dividends and stock
repurchase. The second part verifies the signaling theory based on data from WSE (Warsaw Stock
Exchange). It describes the specifics of Polish market and the methodology of data collection. Then
hypotheses whether the amount of dividend has an impact on the stock price on the day of the
announcement and whether announced dividend convey the information about firm’s future profitability
are tested. In the end there are presented the results. Analysis of the collected data gave mixed evidence
for the signalling theory. Data confirmed the relationship between dividends and firms’ future
profitability, but not the relationship with stock prices. Based on the results I hypothesise that the
information contained in dividends is not exclusive, i.e. at the time of dividend announcement managers
have already an access to the information it conveys.


Česká Spořitelna


Patria Finance