Information Asymmetry, Dividend Status, and Seo Announcement-Day Returns

Booth, Laurence; Chang, Bin

doi:10.1111/j.1475-6803.2010.01287.x

Cited by 38 publications

(53 citation statements)

References 44 publications

(99 reference statements)

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“…Therefore, based on the agency theory, the substitution hypothesis posits a negative relationship between disclosure quality and dividend payouts. Moreover, from the signaling perspective, dividend can be is a credible signal when there is high information asymmetry (Booth and Chang, 2011;Cheng et al, 2011). Firms with higher disclosure quality can reduce the extent of information asymmetry between managers and outsiders.…”

Section: Disclosure and Dividendsmentioning

confidence: 99%

Can Disclosure Quality Explain Dividend Payouts?

Lin

Kuo

Wang

2014

IBR

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This study investigates how a firm's disclosure quality affects its dividend policy. Using a sample of Canadian firms with disclosure data from The Globe and Mail, we empirically test the outcome hypothesis and the substitution hypothesis. The outcome hypothesis posits that dividends are an outcome of an effective governance regime and complements other governance mechanisms while the substitution hypothesis argues that dividend payout is a substitute for other forms of governance. Since disclosure quality can reflect the severeness of agency problems between outsiders and insiders, the outcome hypothesis predicts that higher disclosure quality would lead to higher dividend payouts while the substitution hypothesis predicts that lower disclosure quality is associated with higher payouts. This study contributes to the ongoing debate on the relationship between disclosure quality and dividend policy. Our results provide support for the outcome hypothesis; specifically, better disclosure quality is associated with both a stronger propensity to pay dividends and among dividend payers, with larger dividends.

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Section: Disclosure and Dividendsmentioning

confidence: 99%

Can Disclosure Quality Explain Dividend Payouts?

Lin

Kuo

Wang

2014

IBR

View full text Add to dashboard Cite

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“…The dividend literature provides compelling evidence that relative to non-payers, information asymmetry is a less serious problem for dividend payers (Howe and Lin, 1992;Khang and King, 2006;Li and Zhao, 2008). Therefore, the market reacts less negatively to SEO announcements made by dividend payers than those made by non-payers (Booth and Chang, 2011). Moreover, Deshmukh (2005) shows that issue costs are adversely associated with dividend yield.…”

Section: A Twist By the 2008 Regulationmentioning

confidence: 99%

External finance and dividend policy: a twist by financial constraints

Zhong

Chen

Huang

et al. 2016

Accounting & Finance

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This study assesses distorting effect of financial constraints on the inverse relationship between internal and external finance by examining impact of an exogenous financing shock (i.e. a regulation released in China in 2008) on dividend policies in a quasi-natural experimental setting. Our result shows that in the absence of the regulation, the inverse relationship holds. However, the relation is twisted by the 2008 regulation. Compared with unconstrained firms, financially constrained firms are more willing to pay dividends and are more restrained to reduce cash dividends after the regulation, despite the fact that their external financing capacities are further constrained.

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“…1 Previous studies show that issue costs are adversely associated with dividend yield (Deshmukh (2005)) and that the market reacts less negatively to dividend payers' SEO announcements than to nonpayers' announcements (Booth and Chang (2011)). The underlying argument is that dividend payment could reduce potential information asymmetry, thereby mitigating financing costs.…”

Section: Why Would a Constrained Firm Increase Dividends If The Incrementioning

confidence: 99%

“…Therefore, the market reacts less negatively to dividend payers' SEO announcements than to nonpayers' announcements (Booth and Chang (2011)). Moreover, Deshmukh (2005) shows that issue costs are adversely associated with dividend yield.…”

Section: Financing Capacity and Dividend Policy In Financially Constrmentioning

confidence: 99%

Essays on corporate dividend policy: Chinese evidence

Pan¹

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The thesis examines the dividend puzzle in the context of the Chinese capital market and further investigates the factors that significantly affect dividend policy in Chinese listed firms. In Chapter two, we examine the announcement effects of dividends in the Chinese capital market, with an emphasis on stock dividends. We begin by separately investigating the cumulative abnormal returns around the announcements of cash, stock and combined dividends. Because earnings are announced concurrently with dividend decisions in China, and therefore the estimated abnormal returns could be confounded by the earnings effect, we attempt to examine the dividend announcement effect under different earnings signals. We find a strong announcement effect of stock dividends even after controlling for concurrent earnings surprises. In contrast, pure cash dividend stocks experience no significant price run-up around the announcements. In addition, we examine the difference in market reactions to a positive or negative earnings announcement as firms initiate, maintain or switch to different forms of payouts. It appears that switching from other types of dividends to stock dividends reinforces the earnings signal.Chapter three examines the effect of corporate governance and stock liquidity on corporate payout policy in the context of the split-share structure reform initiated in China in 2005. Under this reform, non-tradable shares were compulsorily converted into tradable shares. The reform removed a liquidity constraint; it also facilitated better alignment of the interests of controlling shareholders with those of outside investors. These changes led to significant improvements in firms' share liquidity and governance. We investigate the implications of share reform-induced governance and liquidity improvements for corporate dividend policy. First, we examine how listed firms' dividend policy responds to a governance and liquidity shock (i.e., the split-share structure reform) by comparing corporate dividend policy before and after the reform. Second, we explore the channels through which the reform affects corporate dividend policy by considering the effect of corporate governance and stock liquidity. We find that the average cash dividend payout decreases in the post-reform period and that the reduction in cash payouts is more pronounced among firms with higher growth rates and higher liquidity. Given the fundamental difference in controlling shareholders between state-controlled and privately controlled firms, the reduction in cash payouts appears to be more substantial in state-controlled firms. Our results are robust to different time horizons surrounding the reform. We also investigate whether the reform affects the decisions of firms to pay cash dividends. The results indicate that the propensity to pay cash dividends

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Information Asymmetry, Dividend Status, and Seo Announcement-Day Returns

Cited by 38 publications

References 44 publications

Can Disclosure Quality Explain Dividend Payouts?

Can Disclosure Quality Explain Dividend Payouts?

External finance and dividend policy: a twist by financial constraints

Essays on corporate dividend policy: Chinese evidence

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