« Back to Results


Paper Session

Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, Grand Ballroom C
Hosted By: American Finance Association
  • Chair: Toni Whited, University of Michigan

The Information Content of Dividends: Safer Profits, Not Higher Profits

Roni Michaely
Cornell University
Stefano Rossi
Bocconi University
Michael Weber
University of Chicago


Contrary to signaling models’ central predictions, changes in profits do not
empirically follow changes in dividends, and firms with the least need to signal
pay the bulk of dividends. We show both theoretically and empirically that
dividends signal safer, rather than higher, future profits. Using the Campbell
(1991) decomposition we find that cash-flow-volatility changes follow dividend and
repurchase changes (in opposite direction), and that larger volatility changes come
with larger announcement returns consistent with our model’s predictions. The data
support the prediction that the signaling cost is foregone investment opportunities.
We conclude payout policy conveys information about future cash-flow volatility.

Payout Taxation and Corporate Investment: The Agency Channel

Song Ma
Yale University


This paper demonstrates a new agency channel through which payout taxation affects corporate investment. Lower payout taxes increase managers' cash flow right to the firm via managerial ownership, which further aligns shareholder-manager incentives but exacerbates managerial risk exposures to the firm. I develop a framework to test this channel and provide supporting evidence using a setting of innovation investments around the 2003 Dividend Tax Cut. Aligning incentives stimulates the innovation input and output. Aggravated managerial risk aversion impedes innovation quantity and also shifts innovation to safer and more incremental directions. I also explore underlying operational channels and interactive mechanisms.

Investment Returns and Distribution Policies of Non-Profit Endowment Funds

Sandeep Dahiya
Georgetown University
David Yermack
New York University


We present the first estimates of investment returns and distribution rates for U.S. non-profit endowment funds, based on a comprehensive sample of more than 28,000 organizations drawn from Internal Revenue Service filings for 2009-2016. Endowments badly underperform market benchmarks, with median annual returns 5.53 percentage points below a 60-40 mix of U.S. equity and Treasury bond indexes, and statistically significant alphas of -1.01% per year. Smaller endowments have less negative alphas than larger endowments, but all size classes significantly underperform. Higher education endowments, the majority of the $0.7 trillion asset class, do significantly worse than funds in other sectors. Distribution ratios are conservative, well below the funds’ long-run returns. Donors increase contributions when endowment returns are strong, with an elasticity of about 0.13 between net-of-market investment returns and new donations.
Yufeng Wu
University of Illinois
Constantine Yannelis
New York University
Jialan Wang
University of Illinois
JEL Classifications
  • G3 - Corporate Finance and Governance