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Earnings and Dividend Announcements is there a Corroboration Effect?

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  • Alex Kane
  • Young Ki Lee
  • Alan J. Marcus

Abstract

We examine abnormal stock returns surrounding contemporaneous earnings and dividend announcements in order to determine whether investors evaluate the two announcements in relation to each other.We find that there is a statistically significant interaction effect.The abnormal return corresponding to any earnings or dividend announcement depends upon the value of the other announcement. This evidence suggests the existence of a corroborative relationship between the two announcements. Investors give more credence to unanticipated dividend increases or decreases when earnings are also above or below expectations, and vice versa.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1248.

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Date of creation: Dec 1983
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Publication status: published as Kane, Alex, Young Ki Lee, and Alan J. Marcus. "Earnings and Dividend Announcements: Is There a Corroboration Effect?" Journal of Finance, Vol. 39, No. 4, (September 1984), pp. 1091-1099.
Handle: RePEc:nbr:nberwo:1248

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  1. Kaplan, Robert S & Roll, Richard, 1972. "Investor Evaluation of Accounting Information: Some Empirical Evidence," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 45(2), pages 225-57, April.
  2. Watts, Ross L, 1976. "Comments on "On the Informational Content of Dividends."," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 49(1), pages 81-85, January.
  3. Watts, Ross, 1973. "The Information Content of Dividends," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 46(2), pages 191-211, April.
  4. Brown, Stewart L, 1978. "Earnings Changes, Stock Prices, and Market Efficiency," Journal of Finance, American Finance Association, American Finance Association, vol. 33(1), pages 17-28, March.
  5. Pettit, R Richardson, 1972. "Dividend Announcements, Security Performance, and Capital Market Efficiency," Journal of Finance, American Finance Association, American Finance Association, vol. 27(5), pages 993-1007, December.
  6. Watts, Ross L, 1976. "Comments on "The Impact of Dividend and Earnings Announcements: A Reconciliation."," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 49(1), pages 97-106, January.
  7. Miller, Merton H & Scholes, Myron S, 1982. "Dividends and Taxes: Some Empirical Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1118-41, December.
  8. Divecha, Arjun & Morse, Dale, 1983. "Market Responses to Dividend Increases and Changes in Payout Ratios," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 18(02), pages 163-173, June.
  9. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
  10. Pettit, R Richardson, 1976. "The Impact of Dividend and Earnings Announcements: A Reconciliation," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 49(1), pages 86-96, January.
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Cited by:
  1. Jyrki Niskanen & Juha Kinnunen & Eero Kasanen, 1998. "A note on the information content of parent company versus consolidated earnings in Finland," European Accounting Review, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(1), pages 31-40.
  2. How, Janice C.Y. & Verhoeven, Peter & Huang, Caro X., 2005. "Information asymmetry surrounding earnings and dividend announcements: An intra-day analysis," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 68(5), pages 463-473.
  3. Sabur Mollah, 2011. "Do emerging market firms follow different dividend policies?: Empirical investigation on the pre- and post-reform dividend policy and behaviour of Dhaka Stock Exchange listed firms," Studies in Economics and Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 28(2), pages 118-135, June.
  4. B. Douglas Bernheim & Adam Wantz, 1992. "A Tax-Based Test of the Dividend Signaling Hypothesis," NBER Working Papers 4244, National Bureau of Economic Research, Inc.
  5. Hiroyuki Ishikawa, 2011. "Empirical Analysis on the Dividend Life-Cycle Theory: Evidence from Japan," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, Research Institute for Economics & Business Administration, Kobe University, vol. 1, pages 39-60, December.
  6. Goergen, Marc & Renneboog, Luc & Correia da Silva, Luis, 2005. "When do German firms change their dividends?," Journal of Corporate Finance, Elsevier, Elsevier, vol. 11(1-2), pages 375-399, March.
  7. Cheng, Louis T.W. & Davidson III, Wallace N. & Leung, T.Y., 2011. "Insider trading returns and dividend signals," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(3), pages 421-429, June.
  8. Kasanen, Eero & Kinnunen, Juha & Niskanen, Jyrki, 1996. "Dividend-based earnings management: Empirical evidence from Finland," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 22(1-3), pages 283-312, October.
  9. Louis Cheng & Hung-Gay Fung & Tak Leung, 2007. "Information effects of dividends: Evidence from the Hong Kong market," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 28(1), pages 23-54, January.
  10. Warwick Anderson, 2013. "The Role of mid-year dividends as predictors of yearly earnings," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 13/01, University of Canterbury, Department of Economics and Finance.
  11. Thomas McCluskey & Aoife Broderick & Amanda Boyle & Bruce Burton & David Power, 2010. "Evidence on Irish financial analysts' and fund managers' views about dividends," Qualitative Research in Financial Markets, Emerald Group Publishing, Emerald Group Publishing, vol. 2(2), pages 80-99, October.
  12. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, Elsevier, vol. 11(2), pages 111-138.
  13. Mohammad G. Robbani & Rafiqul Bhuyan, 2010. "Re-stating financial statements and its reaction in financial market: Evidence from Canadian stock market," International Journal of Accounting and Information Management, Emerald Group Publishing, Emerald Group Publishing, vol. 18(3), pages 188-197, September.
  14. Azhagaiah Ramachandran & Veeramuthu Packkirisamy, 2010. "The Impact of Firm Size on Dividend Behaviour: A Study With Reference to Corporate Firms across Industries in India," Managing Global Transitions, University of Primorska, Faculty of Management Koper, University of Primorska, Faculty of Management Koper, vol. 8(1), pages 049-078.
  15. Thomas McCluskey & Bruce Burton & David Power, 2007. "Evidence on Irish financial directors' views about dividends," Qualitative Research in Accounting & Management, Emerald Group Publishing, Emerald Group Publishing, vol. 4(2), pages 115-132, July.

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