Corporate Dividends and Seasoned Equity Issues: An Empirical Investigation

This paper investigates whether managers rely on dividends to obtain a higher price in a stock offering and whether the stock price reaction to dividend and offering announcements justifies such a coordination. The evidence does not support either conjecture. Issuing firms are not more likely to pay or increase dividends than nonissuing forms. Moreover, there is little evidence that firms time stock offering announcements right after dividend declarations to benefit from the attendant information disclosure. The analysis of dividend and stock offering announcement effects suggests few if any benefits from linking dividend and stock offering announcements.     

Regular Dividend Announcements and Future Unexpected Earnings: An Empirical Analysis

Previous studies have interpreted stock price reaction to dividend announcements as being consistent with the hypothesis that any changes are forecasts of future corporate profits. Recent studies seem to provide evidence to this effect. This study provides additional empirical evidence pertaining to the issue of whether quarterly cash dividend announcements convey useful information about a firm's future profitability, beyond that contained in contemporaneous quarterly earnings announcements. The association between unexpected changes in quarterly dividends and unexpected accounting earnings in subsequent quarters is examined, after controlling for information contained in past and current earnings series. The results, based on a large sample of regular quarterly cash dividend changes, indicate that firms that increased (decreased) their dividends realized, on average, greater (smaller) unexpected accounting earnings in subsequent periods than firms that did not change their dividends.     

THE RELATION AMONG DIVIDEND POLICY,FIRM SIZE,AND THE INFORMATION CONTENT OF EARNINGS ANNOUNCEMENTS

In this paper we investigate the role of dividends in explaining the size effect. The previous literature concludes that before the firm's earnings announcement, small firm stock prices impound less information than large firm stock prices. This size effect is evidenced by the greater market reaction to small firm earnings announcements than to large firm earnings announcements. We find that if the dividend announcement precedes the earnings announcement, no size effect exists. The implication is that the information conveyed by dividend announcements includes the information conveyed to investors in large firms by other information sources. However, if the firm does not pay dividends or if the firm's earnings announcement precedes its dividend announcement, the size effect exists. The implication is that dividends do not completely explain the size effect. That is, there are information sources other than dividends that are exclusively available to investors in large firms, and the information provided by these sources is reflected in the stock price of large firms before the earnings announcement.     

Stock repurchases: A further test of the free cash flow hypothesis

This study explores the empirical puzzle currently existing regarding the observed positive stock price reaction associated with self-tender offer announcements. The puzzle stems from Lang and Litzenberger's (1989) findings that Jensen's (1986, 1989) free cash flow (overinvestment) hypothesis is consistent with changes in cash dividends, whereas Howe, He and Kao's (1992) study of analogous cash events (i.e., self-tender offers and specially designated dividends) finds no support for the free cash flow hypothesis. By stratifying our sample of firms repurchasing their stock by the source of the firm's free cash flow (overinvestment) problem, additional light is shed on the interaction between the signalling and free cash flow theories.     

The information content of cash dividend announcements in a unique environment

Due to its distinctive institutional background, Oman offers a valuable opportunity to examine stock price reactions to dividend announcements. In Oman, (1) there are no taxes on dividends and capital gains, (2) there is a high concentration of share ownership, (3) there is low corporate transparency, and (4) firms frequently change their dividends. Our results show that announcements of dividend increases are associated with increased stock prices, while announcements of dividend decreases cause decreases in stock prices. Firms that do not change their dividends experience insignificant negative returns. These results contradict tax-based signaling models, which argue that higher taxes on dividends relative to capital gains are a necessary condition for dividends to be informative.     

Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut

We test whether executive stock ownership affects firm payouts using the 2003 dividend tax cut to identify an exogenous change in the after‐tax value of dividends. We find that executives with higher ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in periods when the dividend tax rate was higher. Relative to previous years, firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated, consistent with agency conflicts.     

Dividends and share repurchases during the COVID-19 economic crisis

In this article, we examine dividends and share repurchases of S&P 1500 firms during the COVID-19 crisis characterized by the stock market crash and a relatively quick stock price recovery propelled by technology stocks. We find that the great majority of firms either maintain or increase the level of dividends during the crisis period. Yet, the relation between the dividend payout and reported earnings is negative and significant. This relation also holds for other types of payouts, including share repurchases and special dividends. Moreover, we find that both forecasted and realized earnings of up to 1 year into the future are negatively associated with current dividends, implying that existing payout policies are unsustainable in the longer term. Surprisingly, the difference-in-differences test shows that firms strongly affected by the COVID-19 crisis have higher dividend payouts (relative to net earnings) compared to unaffected firms. The same test indicates that strongly affected firms significantly reduce repurchases.     

Dividends, Asymmetric Information, and Agency Conflicts: Evidence from a Comparison of the Dividend Policies of Japanese and U.S. Firms

We compare dividend policies of U.S. and Japanese firms, partitioning the Japanese data into keiretsu, independent, and hybrid firms. We examine the correlation between dividend changes and stock returns, and the reluctance to change dividends. Results are consistent with the joint hypotheses that Japanese firms, particularly keiretsu-member firms, face less information asymmetry and fewer agency conflicts than U.S. firms, and that information asymmetries and/or agency conflicts affect dividend policy. Japanese firms experience smaller stock price reactions to dividend omissions and initiations, they are less reluctant to omit and cut dividends, and their dividends are more responsive to earnings changes.     

The Market Reaction to Discontinuing Regular Stock Dividends

This paper investigates the behavior of returns to share-holders of NYSE and AMEX firms that publicly announce the discontinuance of regular stock dividends. Using event-type methodology, the results show that the average abnormal return for NYSE and AMEX firms is negative but not statistically significant on the event date. Partitioning the sample by stock-related characteristics shows that for small firms with low stock prices and low institutional ownership, management's decision to drop regular stock dividends conveys a significantly negative signal, which, in turn, causes stock prices to decline. Firms that drop a stock payment and simultaneously initiate or increase cash dividends experience a significant increase in shareholder wealth. However, firms that drop the stock dividend policy and do not begin a cash dividend policy experience a sharp decline in shareholder wealth.     

Valuation Effects of Greek Stock Dividend Distributions

This study analyses the price reaction to stock dividend distributions by firms listed on the Athens Stock Exchange on both the announcement and the ex‐dividend day. It also analyses earnings per share, dividends per share and trading volume in the pre‐ and post‐announcement periods. The findings show statistically insignificant abnormal returns on both the announcement and the ex‐dividend day. The analysis does not reveal any significant change in earnings per share and dividends per share, but it does reveal a significant decline in the market‐adjusted trading volume in the post dividend period. The findings, based on a different institutional environment, expand the empirical evidence on the value effects of stock dividends.     

Stock Price Adjustment to the Information in Dividend Changes

This paper examines abnormal stock returns in the three years surrounding relatively large changes in dividends announced during the 1971 to 1990 period. The main results are that statistically and economically significant negative post-announcement abnormal returns of 11% and 17% over the post-announcement year are found for firms which decrease dividends and those which omit their dividends. Firms resuming and firms increasing dividends do not exhibit significant abnormal returns, on average, over the post-announcement year. The pattern of lagged price adjustment to negative dividend change information differs from that reported for 'earnings surprise' firms in important respects. While the dividend change firms do exhibit returns behavior consistent with year-to-year returns momentum, differences in prior year returns do not explain the differences in returns over the post-announcement period.     

The ex-date impact of special dividend announcements: A note

This study examines the impact of special dividend announcements for a sample of Australian companies on the ex date of the special dividend. This study documents that the drop-off ratio is significantly greater for special dividends that participate in DRPs than non-DRPs. Further, it reveals that the drop-off ratio is greater for resources firms than for financial and industrial firms. Finally, a cross-sectional regression model reveals that the drop in price on the ex-date is significantly related to the announcement period price reaction, DRPs versus non-DRPs, size of the company, and special dividend per share.     

Dividend Policy and Corporate Performance

Substantial research has been conducted to determine the signal that results from dividend initiations and omissions. Our study extends from previous research by measuring the long-term valuation effects following dividend initiations and omissions. We find that firms initiating dividends experience favorable long-term share price performance. Conversely, firms omitting dividends experience unfavorable long-term share price performance. The long-term valuation effects resulting from dividend initiations are more favorable for firms that are smaller, that overinvest, and that had relatively poor performance prior to the initiations. The long-term effects resulting from dividend omissions are more unfavorable for large firms and for firms experiencing relatively large dividend omissions.     

Shareholder wealth,information signaling and the specially designated dividend: An empirical study

This paper examines common stock returns and dividend and earnings patterns surrounding specially designated dividends labeled by management as ‘extra’, ‘special’ or ‘year-end’ and compares them to those surrounding regular (unlabeled) dividend increases. The results support the notion that management uses the labeling of dividend increases to convey information to the market about the future potential of the firm. Unlabeled increases appear to contain the most positive information. Contrary to the sometimes suggested view, specially designated dividends appear to convey positive information about future dividends and earnings beyond that relating to the current period.     

金融危机对公司现金股利政策的影响研究——基于股权结构的视角

论文分析了金融危机对上市公司现金股利政策的影响。研究发现,在金融危机期间,上市公司会降低现金股利支付水平,以应对未来的不确定性。但是,相比非流通股比率低的公司,非流通股比率高的公司在金融危机期间更有可能支付更多的现金股利,以满足非流通股股东对于现金的需求。研究还发现,如果公司在金融危机期间发放现金股利,则市场反应更积极,这说明公司通过股利政策向市场传递了积极的信号。但是,非流通股比率高的公司支付现金股利的市场反应要显著小于非流通股比率低的公司,这可能是市场担心非流通股股东利用现金股利侵害中小股东利益。本文研究结论为完善上市公司的现金股利政策和保护中小投资者利益提供了现实启示。     

Does geography matter? Firm location and corporate payout policy

We investigate the impact of geography on agency costs and firm dividend policies. We argue that remote firm location increases the cost of shareholder oversight of managerial investment decisions. We hypothesize that remotely located firms facing free cash flow problems precommit to higher dividends to mitigate agency conflicts. We find that remotely located firms pay higher dividends. As expected, the effect of geography on dividends is most pronounced for firms with severe free cash flow problems. Further, remotely located firms rely more on regular dividends instead of special dividends or share repurchases and decrease dividends less often.     

A Dividend Payment Effect in Stock Returns

This paper presents evidence for the period 7/62-12/89 that individual NYSE and AMEX stocks provide relatively high average excess returns on the payment dates of quarterly cash dividends and several subsequent trading days. Additional results indicate that returns during the payment period: (a) are not a manifestation of the January, monthly or dividend yield anomalies; (b) are positively related to the stock's dividend yield; and (c) are higher for firms that have dividend reinvestment plans. These findings are consistent with a tendency by stock-holders to reinvest dividend income into the stock of the paying firm, thereby increasing demand for the stock and raising its price. Additional evidence links the returns on these days with (previously-documented) excess returns around the ex-dividend date.     

FIRM SIZE AND DIVIDEND ANNOUNCEMENTS

This study documents an association between firm size and abnormal returns from the announcement of large dividend increases. Dividend announcements are examined only where there are no contemporaneous earnings announcements. The methodology controls for both the payout ratio of firms and the size of the dividend increase. Using means tests and analysis of variance, the findings indicate that the abnormal stock price reaction to a dividend increase is greater for small firms.     

Incentive Compensation and the Stock Price Response to Dividend Increase Announcements

Linking executive compensation to stock price performance is predicted to decrease the usual positive price response to dividend increases for two reasons. One, increasing pay‐performance sensitivity (PPS) exacerbates managers' optimistic bias regarding future firm performance, reducing the credibility of dividend signals. Two, increasing pay‐performance sensitivity reduces the need for dividends as a means of reducing agency costs. Consistent with behavioral and agency theories of corporate finance, we find that price response does decrease as pay‐performance sensitivity increases and that this effect is concentrated in firms with low market‐to‐book ratios. Additional findings are most consistent with the agency cost explanation.     

AN ANALYSIS OF SHAREHOLDER REACTION TO DIVIDEND CUTS AND OMISSIONS

In this paper the proposition is tested that stock market reaction to a dividend change is a function of its information content. A multiple regression model is formulated to identify the factors that contribute significantly to the capital loss suffered by shareholders when firms decide to cut/omit dividends. Results indicate that, in conformity with the information content hypothesis, the announcement period capital loss induced by a dividend deduction significantly depends on the percentage change in dividends, the size and risk of the firm, and the price performance of the firm's stock in the immediately preceding period. The results further reveal that (1) simultaneous announcements of poor earnings cause larger capital losses; (2) prior announcements of loss/lower earnings, strikes, etc. attenuate the negative impact of dividend cuts; (3) managerial reassurances that the dividend reduction is growth-motivated produces a weakly favorable effect, and (4) institution of stock dividends concurrently with the dividend cut significantly reduces the negative valuation effect. It is concluded from the evidence that stock market reaction to managerial signals is a function of the perceived costs associated with these signals.