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Article
Publication date: 1 January 1988

Henry R. Oppenheimer, SUNY‐Binghampton and Terry E. Dielman

In a recent article Aharony and Swary considered the synchronous nature of earnings and dividends announcements in examination of the information content of dividend

Abstract

In a recent article Aharony and Swary considered the synchronous nature of earnings and dividends announcements in examination of the information content of dividend hypothesis. They concluded that their results support the information content of dividends hypothesis—that announcements of changes in dividends provide information beyond that contained in quarterly earnings announcements. A shortcoming of the Aharony and Swary study is that it considers only dividend and earnings announcements that occur at least 11 trading days from each other. In fact, as their Table I indicates the majority of such pairs of announcements occur within ten days of each other. Further, approximately one‐half of their observations of earnings and dividends announcements are separated by at least 21 trading days (close to one calendar month). These considerations lead one to wonder how synchronous their announcements are and whether their results can be generalized to earnings and dividend announcements that actually occur in close proximity to each other.

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Managerial Finance, vol. 14 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 September 2021

Muhammad Ali Jibran Qamar, Asma Hassan, Mian Sajid Nazir and Abdul Haque

The purpose of this paper is to examine the impact of dividend announcements on the stock return of Shariah-compliant and conventional stocks.

Abstract

Purpose

The purpose of this paper is to examine the impact of dividend announcements on the stock return of Shariah-compliant and conventional stocks.

Design/methodology/approach

An event study methodology is applied to study the beta anomaly. Market-adjusted return model, mean-adjusted return model and market model have been applied to calculate excess returns. Estimation period used in this study is 130 days, and event period consists of 21 days in total, i.e. starting from the day –10 “before the cash dividend announcement” to day +10 “after the cash dividend announcements.

Findings

It has been concluded from the results that dividend plays an informational role in the Pakistan Stock Exchange. As the investors in Pakistan react favorably to the dividend increase announcements and unfavorably to the dividend decrease announcements, they consider dividend increase announcement as good news and dividend decrease announcement as bad news.

Practical implications

The findings of this study have several implications for different participants of the stock market, such as investors, academicians, researchers, fund managers and policymakers. They can use this information to make decisions while making efficient portfolios. Investors may get abnormal returns by focusing on the dividend announcement patterns. This can influence the attitude of investors toward efficient investments in the stock market and ultimately contribute to the betterment of society. This study is also beneficial for academicians and researchers, as it provides a comparative analysis of Shariah-compliant and conventional stocks and the anomalous effect of dividend announcements on stock return.

Originality/value

Limited research in the world’s context and null is available in Pakistani context on the subject matter. The comparative analysis of “Shariah-compliant” and “conventional” stocks provides insight into the asset pricing of Shariah-compliant stocks that have not been explored earlier. This study also uses three different methods (mean model, market model and market-adjusted return models) to compare Shariah-compliant and conventional stocks

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International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 14 January 2021

David Michayluk, Karyn Neuhauser and Scott Walker

The study's purpose is to examine market returns around dividend announcements that contrast with a pattern of prior dividend announcements.

Abstract

Purpose

The study's purpose is to examine market returns around dividend announcements that contrast with a pattern of prior dividend announcements.

Design/methodology/approach

The paper identifies firms that have a smooth dividend pattern of once-a-year dividend increases but at some point break that pattern and announce an unchanged dividend. The sample design allows the opportunity to investigate the market reaction to unchanged dividend announcements when an increase was likely to have been expected.

Findings

The results indicate that failing to increase the dividend is associated with significantly positive abnormal returns that are greater in magnitude for more entrenched dividend-increase records, supporting a contrast-effect hypothesis.

Originality/value

The results indicate that dividends are interpreted not only relative to the immediate dividend amount but also how the decision contrasts with dividends over a prolonged period. This finding suggests that the information content of the announcement of an unchanged dividend can vary according to the prior dividend pattern.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 13 September 2011

Hardjo Koerniadi and Alireza Tourani‐Rad

The purpose of this paper is to examine whether managers deliberately use accruals to convey information regarding firm future profitability.

Abstract

Purpose

The purpose of this paper is to examine whether managers deliberately use accruals to convey information regarding firm future profitability.

Design/methodology/approach

The paper uses contemporaneous earnings and dividend increase announcements in New Zealand as the research setting. This setting reduces the possibility of opportunistic income smoothing by managers and, hence, increases the validity of the inference on the accrual signaling hypothesis. The paper employs a refined accrual model that controls the performance effects in estimating the part of accruals subject to managerial discretion.

Findings

The paper finds evidence consistent with managers using both accruals and changes in dividends to communicate private information regarding firm future profitability to the market. In particular, dividend‐increasing firms are observed to report positive accruals that are correlated with the positive market reaction to dividend increase announcements and future profitability. These findings are robust to performance, growth, and post‐earnings announcement drift effects.

Originality/value

This paper provides evidence that managers use accruals in conjunction with a corporate event to convey their private information regarding firm profitability. The results of the study are expected to shed more light on signaling aspects of accruals and to some degree alleviate the negative perception of managerial discretions over accruals vastly documented in the earnings management literature. This will hopefully add supporting evidence to the signaling hypothesis of accruals, which has so far received limited attention in the literature.

Details

Journal of Applied Accounting Research, vol. 12 no. 2
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 15 March 2019

Friday Kennedy Ozo and Thankom Gopinath Arun

Very little is known about the effect of dividend announcements on stock prices in Nigeria, despite the country’s unique institutional environment. The purpose of this…

Abstract

Purpose

Very little is known about the effect of dividend announcements on stock prices in Nigeria, despite the country’s unique institutional environment. The purpose of this paper is, therefore, to provide empirical evidence on this issue by investigating the stock price reaction to cash dividends by companies listed on the Nigerian Stock Exchange.

Design/methodology/approach

Standard event study methodology, using the market model, is employed to determine the abnormal returns surrounding the cash dividend announcement date. Abnormal returns are also calculated employing the market-adjusted return model as a robustness check and to test the sensitivity of the results to β estimation. The authors also examine the interaction between cash dividends and earnings by estimating a regression model where announcement abnormal returns are a function of both dividend changes and earnings changes relative to stock price.

Findings

The study find support for the signaling hypothesis: dividend increases are associated with positive stock price reaction, while dividend decreases are associated with negative stock price reaction. Companies that do not change their dividends experience insignificant positive abnormal returns. The results also suggest that both dividends and earnings are informative, but dividends contain information beyond that contained in earnings.

Research limitations/implications

The sample for the study includes only cash dividend announcements occurring without other corporate events (such as interim dividends, stock splits, stock dividends, and mergers and acquisitions) during the event study period. The small firm-year observations may limit the validity of generalizations from these conclusions.

Practical implications

The findings are useful to researchers, practitioners and investors interested in companies listed on the Nigerian stock market for their proper strategic decision making. In particular, the results can be used to encourage transparency and good governance practices in the Nigerian stock market.

Originality/value

This paper adds to the very limited research on the stock market reaction to cash dividend announcements in Nigeria; it is the first of its kind employing a unique cash dividends data.

Details

Managerial Finance, vol. 45 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 3 September 2018

Wasim Khalil Al-Shattarat, Basiem Khalil Al-Shattarat and Ruba Hamed

This study aims to examine the signalling hypothesis of dividends by testing empirically the market reaction to dividends announcements. Furthermore, this study aims to…

Abstract

Purpose

This study aims to examine the signalling hypothesis of dividends by testing empirically the market reaction to dividends announcements. Furthermore, this study aims to examine the information content of dividends announcements with respect to future earnings changes for a sample of Jordanian industrial firms over the period 2009 to 2015.

Design/methodology/approach

The authors mainly used the event study methodology to examine the market reaction to dividend release announcements. The market model is used to generate the expected returns. Also, the t-test is used to examine the significance of the mean and cumulative abnormal return. Furthermore, a simultaneous-equation model developed by Nissim and Ziv (2001) and Grullon et al. (2005), applying the two-stage least squares (2SLS), is used to examine the relationship between dividends changes and future earnings changes.

Findings

The results reveal consistency with the limited extant empirical evidence for developing markets and provide some new insights for Jordanian listed firms that support the signalling hypothesis. In applying the event study methodology, the information content of dividends shows that there is a significant positive market reaction to dividends announcements. The study’s findings also present a strong relationship between dividends announcements and profitability in the year of announcements and the subsequent year, whereas this relationship does not exist in the second year. The findings show that there is value-relevance for dividends, suggest that investors recognize the signalling purpose and discern that dividends announcements are useful in predicting favourable and unfavourable future earnings in the short run (the same year and subsequent year) and also show that managers may use dividends to signal earnings prospects in anticipation of expected future market benefits.

Research limitations/implications

The findings of this study could have significant policy implications. The support of a signalling effect implies an existence of information symmetry, at least theoretically, between management and investors. On the other side, this study could not reflect the levels of inside ownership or the existence of signalling substitutes even though these findings could have implications for Jordan’s existing corporate governance practices and firms’ disclosure environment. The results are specific to Jordan, but they do shed light on the generality of the rival models of dividend policy. Many of the structural characteristics of the capital market in Jordan are, however, also present in other emerging markets. The results from this study may, therefore, help provide the basis for comparative research both in the region and in other emerging markets.

Practical implications

The support of the signalling effect implies the existence of information symmetries, at least theoretically, between management and investors. These findings could have implications for Jordan’s existing corporate governance practices and firms’ disclosure environment.

Originality/value

This paper contributes to the literature by providing a workable test for the dividend signalling hypothesis, applying a simultaneous-equation model that incorporates the market reaction to dividends announcements and future earnings changes. Moreover, this paper uses a recent data set of dividends announcements in Jordan. This study provides additional insight to support the signalling hypothesis in emerging markets. Overall, current and previous studies have focused typically on investigating dividend policy in developed markets, especially the US and European markets, although there has been limited analysis of dividends changes on earnings changes for developing markets.

Details

Journal of Financial Reporting and Accounting, vol. 16 no. 3
Type: Research Article
ISSN: 1985-2517

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Book part
Publication date: 17 December 2003

Ken Hung, Chang-Wen Duan and Gladson I. Nwanna

This paper explores dividend announcements based on information hypothesis. We explore in particular whether or not information signaling theory existed in Taiwan. We also…

Abstract

This paper explores dividend announcements based on information hypothesis. We explore in particular whether or not information signaling theory existed in Taiwan. We also explore the free cash flow hypothesis. In order to eliminate affecting factors, we target companies with irregular dividends as research samples, just like those with specially designated dividends (SDD). We examine whether or not those proceeds may be deemed as future earnings prospection. In this paper we study mainly dividend announcements made during stockholder’s meetings of the companies listed in the Taiwan Stock Exchange (TSE) or R.O.C. Over-the-Counter Securities Exchange (ROSE). We apply event study as means of analyzing abnormal returns of the companies. In addition we use the GARCH model with traditional ordinary least square to estimate the market model. The results indicate that SDDs are considered positive signals by the national exchange, TSE. In addition, we also show that the first-time SDD does transmit a positive signal to the market regarding the firm’s future cash flow, and that the SDD of no payment in the previous three years is negative. Furthermore, we prove that low Q firms have greater market reaction than high Q firms in announcement period. The free cash flow hypothesis and firm size effects could not be verified in Taiwan.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-251-1

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Article
Publication date: 21 September 2012

Ming‐Long Lee, Kevin C.H. Chiang and Chia‐Wei Lin

During the height of the financial/credit crisis of 2008, the US Internal Revenue Service issued temporary guidance that permits REITs (real estate investment trusts) to…

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3218

Abstract

Purpose

During the height of the financial/credit crisis of 2008, the US Internal Revenue Service issued temporary guidance that permits REITs (real estate investment trusts) to retain cash and pay “effective stock dividends” through 2009 to meet their income distribution requirement. The purpose of this study is to investigate the policy implications of this guidance on shareholders' wealth and the intra‐industry effects for non‐event, rival REITs when event REITs announced elective stock dividends.

Design/methodology/approach

This study identified the announcements of the Revenue Procedures 2008‐68 and 2009‐15 and subsequent six equity REITs announcing the distribution of effective stock dividends in the first quarter of 2009. To assess their implications, this study adopted the event study methodology and multivariate regressions to examine the REIT price reactions and their distribution to the Revenue Procedure announcements and to the elective stock dividend announcements, respectively.

Findings

The Revenue Procedure announcements have positive wealth effects on the entire REIT market and REITs with higher leverage enjoy larger abnormal returns. During firm stock dividend announcement windows, non‐event, rival REITs have higher positive price reactions when the event firm and the non‐event firm are not alike and their returns have a low correlation coefficient, when the event firm has a large negative abnormal price reaction, and when the event firm pays cash/stock dividends in the mixture of 40 percent:60 percent, instead of 10 percent:90percent.

Practical implications

The results will help REIT investors to make better decisions. This study produces important implications for investors to pick REITs which are likely to experience higher returns at periods of turmoil when announcements about dividend policy changes are expected.

Originality/value

To the best of the authors' knowledge, this is the first study looking into intra‐industry effects of REIT dividend announcements and the policy implications of the elective REIT stock dividends permitted by the US Internal Revenue Service. The results of this study show that the informational signals associated with these announcement events are rich and have intra‐industry implications on REIT share prices.

Details

Journal of Property Investment & Finance, vol. 30 no. 6
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 March 2006

Abeyratna Gunasekarage and David M. Power

This paper seeks to examine the long‐run financial and return performance of UK companies which are grouped according to whether or not they have changed their dividends

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4550

Abstract

Purpose

This paper seeks to examine the long‐run financial and return performance of UK companies which are grouped according to whether or not they have changed their dividends and earnings. Prior research has been conducted using US data and they are limited to extreme dividend changes such as dividend initiations and omissions. They have also arrived at contradicting results; some report a drift in performance, while others document evidence of mean reversion in performance. The current paper hopes to resolve this conflict using data for a large sample of UK firms which disclosed more general changes in dividends and earnings.

Design/methodology/approach

The aims of the paper are addressed using a stock market‐based study of share price performance and a detailed analysis of company performance based on financial ratios. These analyses are conducted from five years before to five years after the announcement of dividend/earnings news.

Findings

At the time of the announcements, share returns tend to be positive (negative) where companies have increased (decreased) the dividend and earnings. There is also evidence to suggest that the stock market has anticipated some of this news in the preceding 12 months. However, the dividend/earnings news does not appear to act as a signal of long‐term future company performance; companies which cut this dividend and reported lower earnings achieved the largest excess returns over the next five years. A similar mean‐revealing pattern existed in the financial ratios. Finally, most of the future long‐term share performance was attributable to the earnings rather than to the dividend news.

Research limitations/implications

The main implication of this research is that current dividend/earnings news is not a good guide to future company performance. Indeed, it is these firms which cut their dividends along with reporting a reduction of earnings which achieve excellent results over a subsequent five‐year period. Of course, there are a number of limitations with the research; it draws on data from two previous studies, looks only at the UK and does not consider sophisticated models of investors' expectations with regard to dividend and earnings information.

Originality/value

The main contribution of this paper is the long‐run analysis of UK company performance following joint dividend‐earnings announcements. The analysis is comprehensive in that it considers both stock market performance as well as financial ratio performance for a period of up to five years following the dividend‐earnings news. Thus, it should be of interest to most UK investors as well as to financial managers with large quoted firms. Academics will also be interested in the results since they shed some light on an existing debate in the literature.

Details

Managerial Finance, vol. 32 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 10 July 2017

Susana Yu and Gwendolyn Webb

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…

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.

Details

Managerial Finance, vol. 43 no. 7
Type: Research Article
ISSN: 0307-4358

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1 – 10 of over 2000