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Information effects of dividends: Evidence from the Hong Kong market

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  • Louis Cheng

    ()

  • Hung-Gay Fung

    ()

  • Tak Leung

    ()

Abstract

The literature has suggested that earnings and earnings forecasts provide stronger signals than dividends about future performance of a firm. We test the information effects of simultaneous announcement of earnings and dividends in the Hong Kong market, distinguished by three interesting features (concentrated family-shareholdings, low corporate transparency, and no tax on dividends). Our results show significant share price reactions to unexpected earnings and dividend changes, but dividends appear to play a dominant role over earnings in pricing, a result contrary to findings in the literature. The signaling hypothesis works primarily for firms with earning increases, while the maturity hypothesis works mainly for firms with earnings declines. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • 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, vol. 28(1), pages 23-54, January.
  • Handle: RePEc:kap:rqfnac:v:28:y:2007:i:1:p:23-54
    DOI: 10.1007/s11156-006-0002-y
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    File URL: http://hdl.handle.net/10.1007/s11156-006-0002-y
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    References listed on IDEAS

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    1. repec:wsi:rpbfmp:v:20:y:2017:i:01:n:s0219091517500023 is not listed on IDEAS
    2. Chemmanur, Thomas J. & He, Jie & Hu, Gang & Liu, Helen, 2010. "Is dividend smoothing universal?: New insights from a comparative study of dividend policies in Hong Kong and the U.S," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 413-430, September.
    3. Cheng, Louis T.W. & Davidson III, Wallace N. & Leung, T.Y., 2011. "Insider trading returns and dividend signals," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 421-429, June.
    4. Woo-Jong Lee, 2011. "Managerial entrenchment and the value of dividends," Review of Quantitative Finance and Accounting, Springer, vol. 36(2), pages 297-322, February.

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