Please provide a summary and analysis of signaling versus free cahs flow theory
Please provide a summary and analysis of the attached article: What does earnings management reveal about dividend Initiation.
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Article Summary: Signaling Versus Free Cash Flow Theory
A company’s earnings usually influence the number of dividends shareholders receive after the industry has given out its annual financial report. When a company’s earnings escalate, this translates to an increase in the dividends that would be received by shareholders. There are two theories that are used to explain how earnings will affect a firm’s dividends initiation. The two theories include the signaling theory and the free cash flow theory. A research was conducted to determine how the two theories are used to explain a company’s earnings and subsequent dividend initiation. Therefore, this paper will give a summary of the research outcome.
A company’s earnings usually influence the number of dividends shareholders receive after the industry has given out its annual financial report. When a company’s earnings escalate, this translates to an increase in the dividends that would be received by shareholders. There are two theories that are used to explain how earnings will affect a firm’s dividends initiation. The two theories include the signaling theory and the free cash flow theory. A research was conducted to determine how the two theories are used to explain a company’s earnings and subsequent dividend initiation. Therefore, this paper will give a summary of the research outcome.
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