A Test of Signaling Theory on the Relationship Between Dividend and Cash Flow

Abstract

Rusanti, Nurlina (2004). A Test of Signaling Theory on the Relationship between Dividend and Cash Flow. Yogyakarta. Accounting Department. Economic Faculty. Islamic University of Indonesia. This research is intended to study and analyze whether the dividend policy being used to give the signal for cash flow increased in the future at Jakarta Stock Exchange. The method that is used in this research is purposive sampling method. This research can be additional knowledge to indicate the behavior of stock market in relating to the dividend policy. This research compares three sets of firms based on cash flow: permanent increase (PI firms), temporary increase (TI firms), and no increase (NI firms). And this research examines 15 companies that are PI firms and NI firms. Both of PI firms and NI firms do not use dividend to signal future cash flow. The cash flow before and after the announcement of dividend increase is not significant. Even so with the abnormal return that there is no significant different before and after the announcement ofdividend increase.