The current market value of any asset is the capitalized value of the future stream of income. Equity share, a financial asset, is also valued thus. But where the future earnings are not known with certainty, and the current earnings become unreliable in view of the widespread practice of `Earnings Management', companies should send strong signals to the Capital Market about their earnings potential. In a situation of asymmetric information between investors and company managers, the latter, who has more information, should send strong signals to inform the less informed investors. This paper verifies the following two hypotheses on a sample of 82 companies drawn from the `Industrial Products' sector, listed on the `Main' and `Second' Boards of the Bursa Malaysia Bhd., for the years 2000, 2001 and 2002: (i) Firm's capital structure (Debt to Total Capital) signals to the market, the future earnings prospects of the company and (ii) Dividends signal to the market, the future earnings prospects of the company. The continuous crosssections carried out in this paper has yielded results which are consistent with Hypothesis1. The empirical results on the second hypothesis are inconclusive. The results of the study point out the usefulness of Debt Capital in signaling the future earnings potential of the company.

Shareholder wealth maximization has long been accepted as the goal of corporate entities. This, in other words, is maximization of the market value of equity share. This objective guides the Finance Manager in taking decisions in the areas of Capital Expenditure, Capital Structure and Dividend distribution. It is used in performance evaluation of CEOs and Senior Managers. Market Value Added (MVA), either exclusively or in combination with Economic Value Added (EVA) is used in deciding managerial compensations. This has, sometimes, led to manipulatory practices by management teams to the chagrin of the investor at the capital market. To arrest these unhealthy trends in corporate governance, various agencies, like the professional bodies of accountants, are coming out with various disclosure requirements which would result in a ‘fair’ and ‘true’ picture of present and prospective financial performance of companies.

Asymmetric Information and Signaling Devices for Corporate Earnings Prospects, current market, future earnings, Earnings Management, capital structure, Shareholder wealth maximization, Market Value Added (MVA), Economic Value Added (EVA), financial performance.