 When managers have better information regarding future prospects of a firm, then their information is reflected in the firm's dividend policy to the shareholders and it gives this signal to the external world. Consider that this information inequality is also termed as asymmetry information. Generally firms vary the sizes of their dividends relatively infrequently. Dividend smoothing is practiced by the firm in order to maintain relatively constant dividends across a certain period of time. Firms also try to raise dividend much more frequently than they cut them. And this dividend change happens because the management believes that investors prefer stable dividend with the sustainable growth rate. And also management believes that he desires to maintain a long term target level of dividend payout in the market. Firms generally set dividend at a level they expect to be able to maintain based on the firm's earning future prospects. With smooth dividend, the firm's dividend choice will carry an information regarding the management's expectation on future earnings of the firm. So this phenomena rises to another phenomena that is termed as dividend signaling hypothesis. This phenomena states that dividend changes reflect management's view about the future prospects of a firm's earning and growth in its free cash flows in the days to come. Dividend raises a positive signal to the investor on management's expectations on affording a higher level of payout in the future. A dividend cut may also signal that the management have no hope for the rebounding of earnings in the future, so there is a dividend cut for the shareholders. It is notable that dividend signaling is similar to the use of leverage as a signal, as increasing debt signals that the management believes that the firm can afford future interest payments. And dividend changes may be expected to be a smooth, somewhat weaker signal than the leverage changes. And how it happens, in fact, a dividend rise may also signal a lack of investment opportunities, but a dividend cut might be a new signal for a new positive NPV investment opportunity for the firm. Dividend signals must be interpreted in the sense in the context of the type of the new information the managers likely to have. What is the relationship between signaling and then share repurchase? Like dividends, share repurchase may also signal management's information to the market. This means that, however, there exists some differences between share repurchase and dividend with reference to the firm's managers. In fact, managers are least committed to the repurchase than to the cash dividends because there is no chance of smoothing of the dividend repurchase by a firm from year to year. Cash dividend can be smoothed by the firm, but the share repurchase cannot be smoothed by the firm on yearly basis. Governors can also manipulate the share prices in the market at the time of repurchase, particularly in the case of when the price is undervalued or it is overvalued. On a repurchase transaction, it is desirable that the firm's CFO should act in the best interest of the long-term shareholders. Finally, the share repurchase is a credible signal that the management believes its shares are underpriced in the market.