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Buybacks versus Ordinary Dividends: Marginal Investor Reactions to Cash-return Announcements

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Abstract

This paper examines the stock price effect in New Zealand of announcements of increases in dividends and of share repurchases from 1993 to 2009. The results are related to the soft substitution hypothesis on Australian data. Dividend-increase announcements provoke a greater positive effect on the stock price than buyback announcements. The preference of the marginal investor is also examined when firms distribute cash through both mechanisms. Again, investors prefer dividend increases over repurchases, and do so to a greater degree than for firms that only use one form of distribution.

Suggested Citation

  • Warwick Anderson & Samuel McLaughlin, 2013. "Buybacks versus Ordinary Dividends: Marginal Investor Reactions to Cash-return Announcements," Working Papers in Economics 13/03, University of Canterbury, Department of Economics and Finance.
  • Handle: RePEc:cbt:econwp:13/03
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    File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1303.pdf
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    Keywords

    Event Study; Dividends; Stock Repurchases; Abnormal Returns;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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