Journal of Financial and Quantitative Analysis Vol. 26 No. 2 1991
Financial Signalling by Committing to Cash Outflows
Abstract
We analyze a model in which firms signal their quality by using financial policies to commit to cash outflows. Two financial policies may be used: dividend and debt-service obligations. We find sufficient conditions for the informational equilibrium to entail concommitant use of both dividends and leverage in the cost-minimizing combination of the commitment signal. In this equilibrium, better firms pay higher dividends and are more highly levered than lower quality firms.
- DOI
- 10.2307/2331263
- Volume
- 26
- Issue
- 2
- Pages
- 165
- Sources
- openalex crossref