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Earnings and Dividend Announcements is there a Corroboration Effect?

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  • Alex Kane
  • Young Ki Lee
  • Alan J. Marcus

Abstract

We examine abnormal stock returns surrounding contemporaneous earnings and dividend announcements in order to determine whether investors evaluate the two announcements in relation to each other.We find that there is a statistically significant interaction effect.The abnormal return corresponding to any earnings or dividend announcement depends upon the value of the other announcement. This evidence suggests the existence of a corroborative relationship between the two announcements. Investors give more credence to unanticipated dividend increases or decreases when earnings are also above or below expectations, and vice versa.

Suggested Citation

  • Alex Kane & Young Ki Lee & Alan J. Marcus, 1983. "Earnings and Dividend Announcements is there a Corroboration Effect?," NBER Working Papers 1248, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1248
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    1. Brown, Stewart L, 1978. "Earnings Changes, Stock Prices, and Market Efficiency," Journal of Finance, American Finance Association, vol. 33(1), pages 17-28, March.
    2. Pettit, R Richardson, 1972. "Dividend Announcements, Security Performance, and Capital Market Efficiency," Journal of Finance, American Finance Association, vol. 27(5), pages 993-1007, December.
    3. Watts, Ross, 1973. "The Information Content of Dividends," The Journal of Business, University of Chicago Press, vol. 46(2), pages 191-211, April.
    4. Divecha, Arjun & Morse, Dale, 1983. "Market Responses to Dividend Increases and Changes in Payout Ratios," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(02), pages 163-173, June.
    5. Miller, Merton H & Scholes, Myron S, 1982. "Dividends and Taxes: Some Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1118-1141, December.
    6. Watts, Ross L, 1976. "Comments on "On the Informational Content of Dividends."," The Journal of Business, University of Chicago Press, vol. 49(1), pages 81-85, January.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    8. Watts, Ross L, 1976. "Comments on "The Impact of Dividend and Earnings Announcements: A Reconciliation."," The Journal of Business, University of Chicago Press, vol. 49(1), pages 97-106, January.
    9. Pettit, R Richardson, 1976. "The Impact of Dividend and Earnings Announcements: A Reconciliation," The Journal of Business, University of Chicago Press, vol. 49(1), pages 86-96, January.
    10. Kaplan, Robert S & Roll, Richard, 1972. "Investor Evaluation of Accounting Information: Some Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 45(2), pages 225-257, April.
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