Evidence of a Relation Between Stock Price Reactions Around Cash Dividend Changes and Yields

Abstract

Here, the relation between stock price reactions to announced dividend changes and the yields of the underlying securities is examined. A significant positive (negative) relationship is detected between announcement date returns and yield for dividend increases (decreases) even after controlling for the magnitude of the dividend change. Price reactions associated with dividend increases vary directly with the change in yield and, on average, low-yielding companies do not experience abnormal returns when they increase their dividends. Implied in these results is that the information conveyed through dividend changes varies with the yield of the underlying security and the market response is a function of factors beyond the pure information effect.

Impact of Dividend‐protected Employee Stock Options on Payout Policies: Evidence From Taiwan

“…The rationale can be explained as follows. According to the literature, many previous studies including Barclay (1987), Fehrs et al . (1988), Brook et al .…”

Common Stock Price Effects of Security Issues Conditioned by Current Earnings and Dividend Announcements

“…Ball and Brown (1968) and Rendleman, Jones, and Latane (1982) show a direct relationship between common stock price changes and the announcement of unexpected earnings. Charest (1978), Aharony andSwary (1980), Kwan (1981), Mullins (1983), Brickley (1983), Handjinicolaou andKalay (1984), Fehrs, Benesh, andPeterson (1988), and Lang and Litzenberger (1989) support the information content of dividend announcements. Kane, Lee, and Marcus (1984) provide evidence of signaling interactions between earnings and dividends announcements.…”

Do dividends signal future earnings in the Nordic stock markets?

“…Also event study tests typically confirm that the price reactions to dividend cuts / omissions are typically greater than to dividend increases, and that dividends do have some information content, since stock prices react to dividend changes (see e.g. Aharony and Swary 1980;Dielman and Oppenheimer 1984;Healy and Palepu 1988;Fehrs et al 1988;Asquith and Mullins 1983;Woolridge 1983;Brickley 1983;Kane et al 1984;Kalay and Lowenstein 1985;Ofer and Siegel 1987;Dhillon and Johnson 1994;and Christie 1994;Abeyratna et al 1996;Viswanath et al 2002;and Cheng et al 2007). 4 Michaely et al (1995) have showed that dividend initiations lead to an increase in the stock price while omissions are followed by a stock price decline.…”