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Does the information content of payout initiations and omissions influence firm risks?

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  • von Eije, Henk
  • Goyal, Abhinav
  • Muckley, Cal B.

Abstract

We study the influence on firm risks of NASDAQ and NYSE firm payout initiations and omissions. These payout events can be interpreted as managerial signals of firm financial life-cycle maturation resulting in concomitant changes in firm risks. We remove confounding payout types and we match on the propensity to initiate or omit informed by determinants of payout known to investors in advance. For payout event and matched firms, we apply the difference-in-differences method to estimate the effect of the information content of actual initiations and omissions on firm risks. We find consistent significant declines in total, aggregate systematic, and idiosyncratic firm risks after cash dividend initiations and increases after dividend omissions, but only incidentally after share repurchase initiations and omissions.

Suggested Citation

  • von Eije, Henk & Goyal, Abhinav & Muckley, Cal B., 2014. "Does the information content of payout initiations and omissions influence firm risks?," Journal of Econometrics, Elsevier, vol. 183(2), pages 222-229.
    • Handle: RePEc:eee:econom:v:183:y:2014:i:2:p:222-229
    DOI: 10.1016/j.jeconom.2014.05.012
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    6. Tripathy, Niranjan & Wu, Da & Zheng, Yi, 2021. "Dividends and financial health: Evidence from U.S. bank holding companies," Journal of Corporate Finance, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Dividends; Repurchases; Initiations; Omissions; Total risk; Idiosyncratic risk; Systematic firm risks; Self-selection;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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