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The Relation Among Dividend Policy, Firm Size, And The Information Content Of Earnings Announcements

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  • Haim Mozes
  • Donna Rapaccioli

Abstract

In this paper we investigate the role of dividends in explaining the size effect. The previous literature concludes that before the firm's earnings announcement, small firm stock prices impound less information than large firm stock prices. This size effect is evidenced by the greater market reaction to small firm earnings announcements than to large firm earnings announcements. We find that if the dividend announcement precedes the earnings announcement, no size effect exists. The implication is that the information conveyed by dividend announcements includes the information conveyed to investors in large firms by other information sources. However, if the firm does not pay dividends or if the firm's earnings announcement precedes its dividend announcement, the size effect exists. The implication is that dividends do not completely explain the size effect. That is, there are information sources other than dividends that are exclusively available to investors in large firms, and the information provided by these sources is reflected in the stock price of large firms before the earnings announcement.

Suggested Citation

  • Haim Mozes & Donna Rapaccioli, 1995. "The Relation Among Dividend Policy, Firm Size, And The Information Content Of Earnings Announcements," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(1), pages 75-88, March.
    • Handle: RePEc:bla:jfnres:v:18:y:1995:i:1:p:75-88
    DOI: 10.1111/j.1475-6803.1995.tb00212.x
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    Cited by:

    1. Alpa Dhanani, 2005. "Corporate Dividend Policy: The Views of British Financial Managers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1625-1672, September.

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