Munich Personal RePEc Archive

Dividend Signaling and Unions

Arturo, Ramirez Verdugo (2004): Dividend Signaling and Unions.

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Dividend signaling models suggest that dividends are used to convey information about future earnings to investors. However, in a world where unions also receive these signals, managers are less inclined to send the signal in order to avoid the union capturing these future earnings through higher salaries. Using information from IRS 5500 Forms to measure firm level unionization, I found that the power of dividends as predictors of future earnings tends to be higher for non-unionized firms. Moreover, I use the variation at the state level in the adoption of right-to-work laws to overcome the possible endogeneity of unionization with an instrumental variables approach. The empirical results are robust to different specifications and time periods

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