Are dividends a signal of future firm performance? An empirical test of the dividend signaling hypothesis among Norwegian listed firms

Abstract

The goal of this paper is to examine the dividend behavior, as well as to test the dividend signaling hypothesis among Norwegian firms listed on the OSE. The signaling hypothesis predicts that changes in dividend payouts act as signals of the future performance of the firm. To test this, I examine the relation between dividend changes and future changes in earnings among 76 public firms over a period of six years. The results of my analysis provide no consistent support for the predictions of the dividend signaling hypothesis. Additionally, my results show that there are clear differences in dividend behavior between Norwegian firms and their US counterparts. The examined Norwegian firms are more flexible with their dividend policies, showing less reluctance to cut and omit dividends than is common among firms in the US. Dividend smoothing also appears to be less prevalent among Norwegian firms.