Information effects of dividends: Evidence from the Hong Kong market |
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| Authors: | Louis T W Cheng Hung-Gay Fung Tak Yan Leung |
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| Institution: | (1) School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;(2) College of Business Administration, University of Missouri St. Louis, One University Plaza, St. Louis, Missouri, 63121-4499, USA;(3) Department of Accountancy, City University of Hong Kong, Hong Kong, Hong Kong |
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| Abstract: | The literature has suggested that earnings and earnings forecasts provide stronger signals than dividends about future performance
of a firm. We test the information effects of simultaneous announcement of earnings and dividends in the Hong Kong market,
distinguished by three interesting features (concentrated family-shareholdings, low corporate transparency, and no tax on
dividends). Our results show significant share price reactions to unexpected earnings and dividend changes, but dividends
appear to play a dominant role over earnings in pricing, a result contrary to findings in the literature. The signaling hypothesis
works primarily for firms with earning increases, while the maturity hypothesis works mainly for firms with earnings declines.
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| Keywords: | Earnings Dividends Price reaction Information effects |
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