Study Of Financial Behavior In The Signal Hypothesis

MM theory is a foundation of modern finance. One of its hypothesis is complete information in efficient capital market that is completely symmetrical information. However, asymmetric information exists indeed. Because of all kinds of subjective or objective reasons, information spreads unevenly and asymmetrical among many economic individuals, that is to say somebody have more information than others else. With the development of information economics, asymmetrical information becomes an important question of economics study, and signal hypothesis is based on the development of unsymmetrical information. The study of signal theory begans since some behavior of corporate as signal passed to outer who know little information. This article aims to promote our scholars' study of signal theory and to provide guidance to finance behavior of our country's corporate through summarizing the development and application of signal theory in corporate finance.The article summarizes vein of signal theory's development.The origin of signal theory is the development of information economics. In early 1960s or 1970s, economic scholars of western country began to study it, including " lemon market" theory referred by Pro.George Akerlof, signal model theory referred by Pro. Michael Spence. Pro. Joseph Stiglitz explains the reaction of unsymmetrical information at capital market. In 1979,JohnG.Riley discussed how the corporate transfer signal about its value by right way in order to affecting the decision of investors. Also, this article provides further theorical support from the point of behavioral finance. The third part of this article emphasizes all kinds of signals of finance behavior. Signal theory can be applied to many fields of corporate finance, such as fields of capital structure (including debt ratio,pecking-order theory, term-structure of debt,issuing convertible bond,underpricing of new equity issues and etc),dividend policy(including cash dividend,stock dividend,stock-splict,stock-repurchase,initial issuing stock and dividend omissions),free cash flow,corporate acquisition,accounting information and etc.It particularly analyzes how the signals transfer information, what information they transfer, and how the corporates select different signal mechanism.Corporates should consider the comparison between cost and yield of transfering signal in order to get the balance of the signal.The fourth section of article analyzes signal cost,signal yield and impaction on the stock price after signal transition by useing stock signal model of Mill and Rock.Also it takes example of empirical test of our country dividend signal theory,and testify the signal function of dividend police.At last,this article points out signal theory application in our country's corporates. Corporates should select the best finance behavior based on its own characteristic to transfer valuable information, then enlarge corporate value.