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Dividend initiations and long-run IPO performance

Author

Listed:
  • Janice CY How

    ()

  • Kian Ngo
  • Peter Verhoeven

Abstract

Dividend initiations are an economically significant event that has important implications for a firm’s future financial capacity. Given the market’s expectation of a consistent payout, managers of IPO firms must approach the initial dividend decision cautiously. We compare the long-run performance of IPO firms that initiated a dividend with that of similarly matched non-payers, and find robust results that firms which initiated a dividend perform significantly better up to five years after the initiation date. Further tests show that the post-initiation firm performance is explained mostly by dividend theory of signalling rather than free cash flow.

Suggested Citation

  • Janice CY How & Kian Ngo & Peter Verhoeven, 2011. "Dividend initiations and long-run IPO performance," Australian Journal of Management, Australian School of Business, vol. 36(2), pages 267-286, August.
  • Handle: RePEc:sae:ausman:v:36:y:2011:i:2:p:267-286
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