Financial Signalling

INTRODUCTION
Financial Signaling theory states that changes in Financial policy convey information about changes in future cash flows. Dividend signaling suggests a positive relation between asymmetry and dividend policy. In other words, the higher the asymmetric information level, the higher is the sensitivity of the dividend to future prospects of the fir. Several empirical studies attempt to test the informational content of financial singling , yet they disagree about the sign and the significance of information asymmetry on dividend policy. Signalling theory in finance is a term used to describe the behaviour of two parties that have different information. It states that corporate financial decisions are signals that are sent by managers to investors so as to shake them up. Dividend theory suggests that dividend is sticky and it can be used to signal quality of the firms. However, empirical evidences do not strongly support the signaling efficiency of dividend to future firms performance. Specifically, when dividend surprise is measured in terms of differences from past dividend, empirical research cannot find strong relationship between dividend surprise in current period and future firm performance.

SCOPE
Signaling theory is useful for describing behavior when two parties (individuals or organizations) have access to different information. Typically, one party, the sender, must choose whether and how to communicate (or signal) that information, and the other party, the receiver, must choose how to interpret the signal. Accordingly, signaling theory holds a prominent position in a variety of management literatures, including strategic management, entrepreneurship, and human resource management. While the use of signaling theory has gained momentum in recent years, its central tenets have become blurred as it has been applied to organizational concerns. Dividend theory suggests that dividend is sticky and it can be used to signal quality of the firms. However, empirical evidences do not strongly support the signaling efficiency of dividend to future firms performance. Specifically, when dividend surprise is measured in terms of differences from past dividend, empirical research cannot find strong relationship between dividend surprise in current period and future firm performance. There were huge scopes to work in the arena of the case. Considering the dead line, the scope and exposure of the paper has been wide-ranging. The study behind Signaling Theory Assessment has covered overall analysis in making investment decision the different information system applied in signaling theory, advantages applying the method and solution are shown in this case.

OBJECTIVES
The main objective of this case study is to earn knowledge about the Signaling Theory and its impact on companys investment and management 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

LIMITATION
As we collected our information through secondary sources, so we have not been able to collect more information which could give us more clear knowledge about the signaling theory. While conducting the case on Financial Singling some limitations was yet present there: Because of time shortage many related area cannot be focused in depth. 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.

CLARITY ABOUT SINGLING

Response Yes No Not much clear Respondent 22 1 2

SIGNALS PLAYS AN IMPORTANT ROLE IN BUSINESS

Views Strongly Agree Agree Disagree Strongly Disagree Respondent 21 3 1 0

SIGNALS PLAYS AN IMPORTANT ROLE IN FINANCIAL DECISION MAKING

Views Strongly Agree Agree Disagree Strongly Disagree Respondent 20 3 1 1

ACCORDING TO YOU WHAT IS THE SCOPE OF FINANCIAL SIGNALING

Views Bright Respondent 4

Very Bright
Dull

17
4

HAVE YOU EVER FACED ANY LOSS DUE TO NEGATIVE FINANCIAL SINGLING.
Views Yes Respondent 2

No
Not Answered

21
2

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 Yes No Neutral Respondent 22 1 2

FINDINGS
It was found that the concept of financial signaling was not a familiar concept but after explaining it almost every person at managerial level admit that financial signaling plays 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 financial signaling. It was found that there is direct relation between signaling and financial decisions. It was also found that signal directly effects to business as they may positive or negative. It was also found that scope of financial signaling is very bright as a separate filed of finance.

CONCLUSION
Although the results reviewed in this study provide useful insight to financial decision makers, this work does not constitute enough progress on how managers should make equity cash flow decisions on the basis of financial decision signaling . More progress on this front requires going behind corporate decisions to investigate how and why decisions are made and why some 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 financial decisions how financial policies are reconciled within the constraints that bind firms' 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 toward solving the equity cash flow puzzles and provides a foundation for future research designed to improve corporate financial decision making. At last it can be concluded that Financial signaling has a positive scope and hence it should be given proper emphases by Govt. and other educational authority as a separate module.

THANKS