REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability

REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability Recent work on stock splits have attempted to relate the information value associated with splits with that from dividends signaling. This paper extends this genre of research by evaluating the issue of dividend predictability using REIT data where the self-selection issue associated with dividend payment is minimized. The use of REIT data also eliminates the “differential expectations” effect for non-dividend paying firms, thus rendering a more robust test of the information substitutability hypothesis postulated by Nayak and Prabhala (2001). To the extent that stock splits are signals of future cash flows, we further examine the question of leverage predictability associated with REIT splits, particularly for highly levered firms. We find that REITs that use dividend changes as a signaling mechanism prior to splits have smaller price responses to the private information revealed by splits than those that do not provide such signals, consistent with the notion that dividends and splits are indeed information substitutes. Further, REIT splits provide useful information about future dividend and leverage changes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2006 by Springer Science + Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-006-8945-2
Publisher site
See Article on Publisher Site

Abstract

Recent work on stock splits have attempted to relate the information value associated with splits with that from dividends signaling. This paper extends this genre of research by evaluating the issue of dividend predictability using REIT data where the self-selection issue associated with dividend payment is minimized. The use of REIT data also eliminates the “differential expectations” effect for non-dividend paying firms, thus rendering a more robust test of the information substitutability hypothesis postulated by Nayak and Prabhala (2001). To the extent that stock splits are signals of future cash flows, we further examine the question of leverage predictability associated with REIT splits, particularly for highly levered firms. We find that REITs that use dividend changes as a signaling mechanism prior to splits have smaller price responses to the private information revealed by splits than those that do not provide such signals, consistent with the notion that dividends and splits are indeed information substitutes. Further, REIT splits provide useful information about future dividend and leverage changes.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Jul 20, 2006

References

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