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Dividend Announcements Reconsidered - Dividend Changes versus Dividend Surprises

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  • Christian Andres

    ()
    (WHU – Otto Beisheim School of Management)

  • André Betzer

    (University of Wuppertal)

  • Inga van den Bongard

    (University of Mannheim)

  • Christian Haesner

    (WHU – Otto Beisheim School of Management)

  • Erik Theissen

    (University of Mannheim)

Abstract

This paper reconsiders the issue of share price reactions to dividend announcements. Previous papers rely almost exclusively on a naive dividend model in which the dividend change is used as a proxy for the dividend surprise. We use the difference between the actual dividend and the analyst consensus forecast as obtained from I/B/E/S as a proxy for the dividend surprise. Using data from Germany, we find significant share price reactions after dividend announcements. Once we control for analysts’ expectations, the dividend change loses explanatory power. Our results thus suggest that the naive model should be abandoned. We use panel methods to analyze the determinants of the share price reactions. We find (weak) support in favor of the dividend signaling hypothesis and no support for either the free cash flow hypothesis or the rent extraction hypothesis.

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Bibliographic Info

Paper provided by Universitätsbibliothek Wuppertal, University Library in its series Schumpeter Discussion Papers with number sdp11013.

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Length: 30
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:bwu:schdps:sdp11013

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Web page: http://elpub.bib.uni-wuppertal.de

Related research

Keywords: Dividend Announcements; Market Efficiency; Ownership Structure; Agency Theory;

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  1. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
  2. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  3. Correia da Silva, Luis & Goergen, Marc & Renneboog, Luc, 2004. "Dividend Policy and Corporate Governance," OUP Catalogue, Oxford University Press, number 9780199259304.
  4. Alexander Ljungqvist & Christopher Malloy & Felicia Marston, 2009. "Rewriting History," Journal of Finance, American Finance Association, vol. 64(4), pages 1935-1960, 08.
  5. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
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  7. Amihud, Yakov & Li, Kefei, 2006. "The Declining Information Content of Dividend Announcements and the Effects of Institutional Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 637-660, September.
  8. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
  9. Marco Becht & Ekkehart Boehmer, 2001. "Ownership and voting power in Germany," ULB Institutional Repository 2013/13334, ULB -- Universite Libre de Bruxelles.
  10. Bar-Yosef, Sasson & Sarig, Oded H, 1992. " Dividend Surprises Inferred from Option and Stock Prices," Journal of Finance, American Finance Association, vol. 47(4), pages 1623-40, September.
  11. Amihud, Yakov & Murgia, Maurizio, 1997. " Dividends, Taxes, and Signaling: Evidence from Germany," Journal of Finance, American Finance Association, vol. 52(1), pages 397-408, March.
  12. Brandon Julio & David L. Ikenberry, 2004. "Reappearing Dividends," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(4), pages 89-100.
  13. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
  14. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August.
  15. Watts, Ross, 1973. "The Information Content of Dividends," The Journal of Business, University of Chicago Press, vol. 46(2), pages 191-211, April.
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