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Are Dividend Changes a Sign of Firm Maturity?

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Author Info

  • Gustavo Grullon

    (Rice University)

  • Roni Michaely

    (Cornell University and the Inter-Disciplinary Center)

  • Bhaskaran Swaminathan

    (Cornell University)

Abstract

Firms that increase (decrease) dividends experience a significant decline (increase) in their systematic risk. The dividend-increasing firms do not increase their capital expenditure and experience a decline in profitability in the years after the dividend change. The positive market reaction to a dividend increase is significantly related to the subsequent decline in systematic risk. In the long run, the dividendincreasing firms with the largest decline in systematic risk also experience the largest increase in price over the next three years, suggesting that the market reaction to dividend changes may not incorporate the full extent of the decline in the cost of capital associated with dividend changes.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 75 (2002)
Issue (Month): 3 (July)
Pages: 387-424

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Handle: RePEc:ucp:jnlbus:v:75:y:2002:i:3:p:387-424

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Web page: http://www.journals.uchicago.edu/JB/

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