The information content of dividend initiation announcements: The case of information technology firms

Abstract

Purpose

The purpose of this paper is to examine the dividend initiation announcements made by firms in the information technology sector as defined in a modern system of industrial classification.

Design/methodology/approach

On the basis of a modern classification of the information technology industry, the authors examine a wide range of corporate performance and management measures to discriminate between the two theories of the information revealed by the announcement of dividend initiations, the signaling, and life cycle theories.

Findings

The empirical results are more consistent with the corporate life cycle theory of dividends than with the information signaling hypothesis. This finding helps clarify the nature of the information revealed by the announcement.

Originality/value

The paper has clear implications for investors who are interested in the growth prospects of technology firms, or for others interested in their prospective stability and degree of maturity.

Citation

Yu, S. and Webb, G. (2017), "The information content of dividend initiation announcements: The case of information technology firms", Managerial Finance, Vol. 43 No. 7, pp. 794-811. https://doi.org/10.1108/MF-10-2015-0287