DIVIDEND CHANGES OF FINANCIALLY WEAK FIRMS

This study examines both the patterns of dividend changes of financially weak firms and the announcement effects of unexpected dividend changes on both stocks and bonds. Most of the weak firms initially examined did not pay a dividend. For those firms that did, dividend increases were modest, and dividend decreases were large. The results of the bond analysis cannot be used to support either the signalling hypothesis or a wealth expropriations hypothesis. Finally, on average, the stock market does not appear to interpret dividend news for weak firms differently than for strong firms.