Signal

Signal

To convey information through a firm's actions. The more costly it is to provide a signal, the more credibility it has. For example, to call a press conference and tell everyone that the firm's prospects have improved is less effective than saying the same thing and raising the dividend.

Signal

An indication of a company's health and/or actions. Signaling a certain state or action may cause a company's stock to rise or fall in price. Generally speaking, the more money a signal costs a company to make, the stronger the signal is thought to be. For example, a company may make a statement indicating financial distress, but reducing its dividends is thought to be a stronger signal.

signal

To provide information to. For example, an unexpected dividend increase may signal investors that a firm's directors are more optimistic about future profits than previously thought. Likewise, the announcement of a new equity issue may signal investors that directors consider a firm's stock to be fully valued.