Underreaction to Dividend Reductions and Omissions?

Using a sample of 2,337 cash dividend reduction or omission announcements over the 1927 to 1999 period, this study reports significant negative post‐announcement long‐term abnormal returns, which last 1 year only. However, this long‐term abnormal performance is driven by the post‐earnings‐announcement drift. After controlling for the earnings performance and the skewness of buy‐and‐hold abnormal returns, there is no compelling evidence of a post‐dividend‐reduction or post‐dividend‐omission price drift.