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The Impact of Dividend Initiation on the Earnings Announcements and Returns Volatility

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  • Venkatesh, P C

Abstract

This article provides some evidence on the empirical consequences of initiating dividends. First, it documents that the information content of quarterly earnings announcements decreases after the introduction of cash dividends. This suggests that dividends and earnings are partial "information substitutes." The second finding is that the volatility of total daily returns decreases after the initiation of dividends and that most of this decrease is attributable to a decrease in the firm-specific volatility. A possible reason for this is that, in the postdividend period, investors place less weight (relative to the predividend period) on other "information signals" and, hence, observed volatility may be lower. Copyright 1989 by the University of Chicago.

Suggested Citation

  • Venkatesh, P C, 1989. "The Impact of Dividend Initiation on the Earnings Announcements and Returns Volatility," The Journal of Business, University of Chicago Press, vol. 62(2), pages 175-197, April.
    • Handle: RePEc:ucp:jnlbus:v:62:y:1989:i:2:p:175-97
    DOI: 10.1086/296458
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    Cited by:

    1. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
    2. Ali, Heba & Hegazy, Aya Yasser, 2022. "Dividend policy, risk and the cross-section of stock returns: Evidence from India," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 169-192.
    3. Ijaz Ali & Ali Gohar & Omar Meharzi, 2017. "Why do Firms Change Their Dividend Policy?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 411-422.
    4. Balasingham Balachandran & John Cadle & Michael Theobald, 1996. "Interim dividend cuts and omissions in the UK," European Financial Management, European Financial Management Association, vol. 2(1), pages 23-38, March.
    5. Hadfi Bilel & Kouki Mondher, 2021. "What Can explain catering of dividend? Environment information and investor sentiment," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(3), pages 428-450, July.
    6. Kuo, Jing-Ming & Philip, Dennis & Zhang, Qingjing, 2013. "What drives the disappearing dividends phenomenon?," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3499-3514.
    7. W Jane Cheung & Andrew B Jackson, 2013. "Chief Executive Officer departures and market uncertainty," Australian Journal of Management, Australian School of Business, vol. 38(2), pages 279-310, August.
    8. Eva Liljeblom & Sabur Mollah & Patrik Rotter, 2015. "Do dividends signal future earnings in the Nordic stock markets?," Review of Quantitative Finance and Accounting, Springer, vol. 44(3), pages 493-511, April.
    9. Ben Howatt & Richard Zuber & John Gandar & Reinhold Lamb, 2009. "Dividends, earnings volatility and information," Applied Financial Economics, Taylor & Francis Journals, vol. 19(7), pages 551-562.
    10. Amini, Shima & Mohamed, Abdulkadir & Schwienbacher, Armin & Wilson, Nicholas, 2022. "Impact of venture capital holding on firm life cycle: Evidence from IPO firms," Journal of Corporate Finance, Elsevier, vol. 74(C).
    11. Baik, Bok & Kang, Hyoung-Goo & Kim, Young Jun, 2013. "Volatility arbitrage around earnings announcements: Evidence from the Korean equity linked warrants market," Pacific-Basin Finance Journal, Elsevier, vol. 23(C), pages 109-130.
    12. Erin E. Syron Ferris, 2018. "Dividend taxes and stock volatility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 377-403, April.
    13. Surendranath Jory & Thanh Ngo & Hongxia Wang, 2021. "Non‐operating earnings and firm risk," Review of Financial Economics, John Wiley & Sons, vol. 39(1), pages 95-123, January.
    14. Dosoung Choi & Sheng-Syan Chen, 1997. "The Differential Information Conveyed By Share Repurchase Tender Offers And Dividend Increases," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(4), pages 529-543, December.
    15. Kasanen, Eero & Kinnunen, Juha & Niskanen, Jyrki, 1996. "Dividend-based earnings management: Empirical evidence from Finland," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 283-312, October.
    16. Yizhao Hong & Chongyan Cao, 2023. "Institutional Investors’ Distraction and Executive Compensation Stickiness Based on Multiple Regression Analysis," JRFM, MDPI, vol. 16(2), pages 1-21, February.
    17. DasGupta, Ranjan & Dhochak, Monika, 2021. "Risk-Antecedents of Firms and Strategic Mediators – New Evidence from a Cross-Country Analysis," American Business Review, Pompea College of Business, University of New Haven, vol. 24(1), pages 3-35, May.
    18. Shapiro, Dmitry & Zhuang, Anan, 2015. "Dividends as a signaling device and the disappearing dividend puzzle," Journal of Economics and Business, Elsevier, vol. 79(C), pages 62-81.
    19. Lee, Bong Soo & Mauck, Nathan, 2016. "Dividend initiations, increases and idiosyncratic volatility," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 47-60.
    20. Espahbodi, Reza & Liu, Nan & Weigand, Robert A., 2022. "Opportunistic earnings management or performance-related effects? Evidence from dividend-paying firms," Global Finance Journal, Elsevier, vol. 54(C).

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