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The Long-run Performance Following Dividend Initiations and Resumptions: Underreaction or Product of Chance?

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Author Info

  • Rodney D. Boehme

    (C.T. Bauer College of Business, University of Houston)

  • Sorin M. Sorescu

    (C.T. Bauer College of Business, University of Houston)

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    Abstract

    We examine the long-term stock performance following dividend initiations and resumptions from 1927 to 1998. We show that postannouncement abnormal returns are significantly positive for equally weighted calendar time portfolios, but become insignificant when the portfolios are value weighted. Moreover, the equally weighted results are not robust across subsamples. We also document postannouncement reductions in the risk factor loadings of underlying stocks. Cross-sectionally, these reductions are negatively related to the contemporaneous price drifts, suggesting the price drifts may be a sample-specific result of chance. Our results underscore the importance of testing for changes in risk loadings in future long-term event studies. Copyright The American Finance Association 2002.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 57 (2002)
    Issue (Month): 2 (04)
    Pages: 871-900

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    Handle: RePEc:bla:jfinan:v:57:y:2002:i:2:p:871-900

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    Cited by:
    1. Bessembinder, Hendrik & Zhang, Feng, 2013. "Firm characteristics and long-run stock returns after corporate events," Journal of Financial Economics, Elsevier, vol. 109(1), pages 83-102.
    2. Karpavičius, Sigitas, 2014. "Dividends: Relevance, rigidity, and signaling," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 289-312.
    3. Sorescu, Sorin & Subrahmanyam, Avanidhar, 2004. "The Cross-Section of Analyst Recommendations," University of California at Los Angeles, Anderson Graduate School of Management qt76x8k0cc, Anderson Graduate School of Management, UCLA.
    4. Wang, Li-Hsun & Lin, Chu-Hsiung & Fung, Hung-Gay & Chen, Hsien-Ming, 2013. "An analysis of stock repurchase in Taiwan," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 497-513.
    5. Nicolosi, Gina, 2013. "Demographics of dividends," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 54-70.
    6. Malcolm Baker & Jeffrey Wurgler, 2004. "A Catering Theory of Dividends," Journal of Finance, American Finance Association, vol. 59(3), pages 1125-1165, 06.

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