Dividend announcements reconsidered: Dividend changes versus dividend surprises
AbstractThis 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 and find evidence in favor of the cash flow signaling hypothesis and dividend clientele effects. We further find that the price reaction to dividend surprises is related to the ownership structure of the firm. The results do not support the free cash flow hypothesis. --
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Bibliographic InfoPaper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 12-03.
Date of creation: 2012
Date of revision:
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Dividend Announcements; Market Efficiency; Ownership Structure; Agency Theory;
Other versions of this item:
- Christian Andres & André Betzer & Inga van den Bongard & Christian Haesner & Erik Theissen, 2011. "Dividend Announcements Reconsidered - Dividend Changes versus Dividend Surprises," Schumpeter Discussion Papers sdp11013, Universitätsbibliothek Wuppertal, University Library.
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-08 (All new papers)
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