financial signaling by kiran kumari

5/26/2018 Financial Signaling By Kiran Kumari

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Financial Signalling


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INTRODUCTION Financial Signaling theory states that changes in Financial policy convey

information about changes in future cash flows. Dividend signalingsuggests a positive relation between asymmetry and dividend policy. Inother words, the higher the asymmetric information level, the higher isthe sensitivity of the dividend to future prospects of the fir. Severalempirical studies attempt to test the informational content of financialsingling , yet they disagree about the sign and the significance ofinformation asymmetry on dividend policy.

Signalling theory in finance is a term used to describe the behaviour oftwo parties that have different information. It states that corporatefinancial decisions are signals that are sent by managers to investors soas to shake them up.

Dividend theory suggests that dividend is sticky and it can be used tosignal quality of the firms. However, empirical evidences do not stronglysupport the signaling efficiency of dividend to future firmsperformance. Specifically, when dividend surprise is measured in termsof differences from past dividend, empirical research cannot find strongrelationship between dividend surprise in current period and future firm

performance.


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SCOPE

Signaling theory is useful for describing behavior when two parties (individuals

or organizations) have access to different information. Typically, one party, thesender, must choose whether and how to communicate (or signal) thatinformation, and the other party, the receiver, must choose how to interpretthe signal. Accordingly, signaling theory holds a prominent position in a varietyof management literatures, including strategic management,entrepreneurship, and human resource management. While the use ofsignaling theory has gained momentum in recent years, its central tenets have

become blurred as it has been applied to organizational concerns. Dividendtheory suggests that dividend is sticky and it can be used to signal quality ofthe firms. However, empirical evidences do not strongly support the signalingefficiency of dividend to future firmsperformance. Specifically, when dividendsurprise is measured in terms of differences from past dividend, empiricalresearch cannot find strong relationship between dividend surprise in current

period and future firm performance. There were huge scopes to work in thearena of the case. Considering the dead line, the scope and exposure of thepaper has been wide-ranging. The study behind Signaling TheoryAssessment has covered overall analysis in making investment decision thedifferent information system applied in signaling theory, advantages applyingthe method and solution are shown in this case.


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OBJECTIVESThe main objective of this case study is to earn knowledge about theSignaling Theory and its impact on companys investment andmanagement decision making.

Primary Objectives:

The main objective of this assignment is to analyze Signaling Theory.

Secondary Objectives:

This assignment has also some other objectives which are as follows:

To understand the concept of financial signaling

To analysis relation between signaling & Financial Decisions

To know about dividend signaling

To know about its impact on capital structure.

To find out information problems in investment decision making


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LIMITATION

As we collected our information through secondary sources, so wehave not been able to collect more information which could give usmore clear knowledge about the signaling theory. While conductingthe case on Financial Singlingsome limitations was yet presentthere:

Because of time shortage many related area cannot be focused indepth.

Recent data and information on different activities was unavailable.

Recent fall of share market that implements some information

restrictions. As a case analysis, it has been prepared shortly.


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CLARITY ABOUT SINGLING

Response Respondent

Yes 22

No 1

Not much clear 2


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SIGNALS PLAYS AN IMPORTANT ROLE IN BUSINESS

Views Respondent

Strongly Agree 21

Agree 3

Disagree 1

Strongly Disagree 0


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SIGNALS PLAYS AN IMPORTANT ROLE IN FINANCIAL

DECISION MAKING

Views Respondent

Strongly Agree 20

Agree 3

Disagree 1

Strongly Disagree 1


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ACCORDING TO YOU WHAT IS THE SCOPE OF FINANCIAL

SIGNALINGViews Respondent

Bright 4

Very Bright 17

Dull 4


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HAVE YOU EVER FACED ANY LOSS DUE TO NEGATIVE FINANCIAL

SINGLING.

Views Respondent

Yes 2

No 21

Not Answered 2


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OVER IT CAN BE SAID THAT FINANCIAL SIGNALING CAN PLAY A VITAL ROLE IN

THE FILED OF FINANCIAL DECISION MAKING SUCH AS DIVIDEND POLICY,

BUDGETING POLICY ETC .

Views Respondent

Yes 22

No 1

Neutral 2


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FINDINGS

It was found that the concept of financial signaling was nota familiar concept but after explaining it almost everyperson at managerial level admit that financial signalingplays an important role the filed of financial decision making.

It is clear from above study that dividend signaling and

budgetary decision are also depends upon financialsignaling.

It was found that there is direct relation between signalingand financial decisions.

It was also found that signal directly effects to business asthey may positive or negative.

It was also found that scope of financial signaling is verybright as a separate filed of finance.


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CONCLUSION

Although the results reviewed in this study provide useful insight to financialdecision makers, this work does not constitute enough progress on howmanagers should make equity cash flow decisions on the basis of financialdecision signaling . More progress on this front requires going behindcorporate decisions to investigate how and why decisions are made and whysome decisions are favorably received by the capital markets and others poorly

received. As it is also clear that scope of financial Signaling is very bright .Future research needs to focus on the interrelated nature of major financialdecisions how financial policies are reconciled within the constraints that bindfirms' decisions.

This future research will be more difficult than measuring the capital markets'reaction to corporate decisions. But, the payoff promises to be correspondingly

greater as well. The work to date does constitute important progress towardsolving the equity cash flow puzzles and provides a foundation for futureresearch designed to improve corporate financial decision making. At last itcan be concluded that Financial signaling has a positive scope and hence itshould be given proper emphases by Govt. and other educational authority asa separate module.


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THANKS

financial signaling by kiran kumari

Documents

dividend theory

dividend surprise

dividend policy

past dividend

dividend signalingsuggests

theory states

thesignaling theory

signalling theory