Preparing for Dividend Cuts: The Role of Voluntary Disclosure

This study examines how managers prepare stock market through voluntary disclosure. We find that firms announcing dividend cuts experience significantly less negative announcement returns when managers have issued positive earnings guidance prior to the cut—that is, when the market has been "prepared"—compared to unprepared dividend cutters. This mitigating effect is more pronounced among firms with lower stock liquidity, poor historical earnings surprises, concurrent reductions in repurchases, older CEOs, and more salient earnings guidance. Notably, this effect is specific to earnings guidance and does not extend to management guidance on capital expenditures or sales. Furthermore, prepared cutters exhibit superior long-term operating performance and attract greater institutional investor interest in the post-dividend-cut period. We further find that managers are more likely to issue positive earnings guidance following dividend cuts that are associated with favorable market reactions, consistent with a market‑feedback effect. Overall, our results indicate that managers strategically adjust their voluntary disclosure ex ante to shape market perceptions and, ex post, incorporate information from prior market responses when making subsequent disclosure decisions.