Confirming Dividend Changes and the Non-Monotonic Investor Revision of Earnings Persistence

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The stylized facts that firms pay and investors react to dividends disregard dividend neutrality. Taking on the perspective that informational asymmetries are the central determinant for dividend value relevance, Christian Muller assumes that firm’s dividend decision conveys useful information to investors. He shows that investors use dividend changes to revise their a priori expectations about the persistence of a current earnings change. While his theoretical and empirical analyses generally imply that dividend changes constitute informative, but imperfect information signals, he further identifies situations in which they are substantial to investors. Christian Muller’s research comprehensively examines the informational role of dividend policy and provides new insights to the corresponding Bayesian investor learning process.