Journal of Financial and Quantitative Analysis

Research Articles

The Dividend Initiation Decision of Newly Public Firms: Some Evidence on Signaling with Dividends

Jayant R. Kalea1, Omesh Kinia2 and Janet D. Paynea3

a1 Robinson College of Business, Georgia State University, PO Box 3989, Atlanta, GA 30303, and Indian Institute of Management–Bangalore.

a2 Robinson College of Business, Georgia State University, PO Box 3989, Atlanta, GA 30303.

a3 McCoy College of Business, Texas State University, San Marcos, TX 78666.


We track the dividend initiation (DI) decisions from a sample of 6,588 firms that went public during the period 1979–2005 and find that 873 of them initiated dividends. Our primary objective is to determine whether information signaling can explain the DI decision. We find that variables suggested by the dividend-signaling models of John and Williams (1985) and Allen, Bernardo, and Welch (2000) are significant determinants of the DI decision and the associated announcement-period stock price effect. We also find support for the residual, agency, tax, clientele, transaction costs, catering, and life-cycle explanations of dividend policy.

(Online publication January 20 2012)


We appreciate the comments from an anonymous referee, George Benston, David Blackwell, Harry DeAngelo, Vladimir Gatchev, Paul Irvine, Michael Keefe, Paul Malatesta (the editor), Steve Smith, Isabel Tkatch, Sunil Wahal, and participants at the 2009 Financial Management Association Meeting, Atlanta Finance workshop, Chonnam National University, Pusan National University, Seoul National University, and University of Otago. The usual disclaimer applies. Kale’s research was supported, in part, by the H. Talmage Dobbs, Jr. Chair and a research grant from Georgia State University.