The implications of signalling theory for local public limited companies : a survey

Abstract

Due to the problem of asymmetric information, one party to a transaction can take advantage of the party having less information. In view of this fact, signalling can be seen as one way to fill the information gap because one party can send a signal to the other in order to convey a particular message. All kinds of information can be a signal. However, this dissertation studies those signals which are intentional and done for manipulative purposes. This dissertation aims at identifying the existence of such intentional signalling on part of the local public limited companies and the effect signals may have on the public at large. The research is mainly conducted by the use of quantitative methods. Two different but related questionnaires are compiled and dispatched to the Maltese public companies and the general public respectively. The results from the surveys among the companies and the public are analysed using SPSS to identify the use of signalling and its effect. Statistical tests were applied to extract any associations. The areas of signalling studied are financial reporting, together with dividends, marketing, pricing and auditing. It results that manipulative signalling is used by companies in some of the areas more than others and that signalling does have an effect on the public in certain areas as well. Recommendations are given based on the research findings.