Insider Ownership and Signals: Evidence from Dividend Initiation Announcement Effects

Born, Jeffery A.

doi:10.2307/3665913

Cited by 31 publications

(17 citation statements)

References 15 publications

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“…This suggests that when firms are smaller, information asymmetry is larger and the information effect of stock splits is greater. Consistent with Brennan and Copeland (1988), PRZCE is positively related to CAR. TARGET is inversely related to CAR, supporting Brennan and Copeland (1988) and McNichols and Dravid (1990).…”

Section: Test Of Hypothesissupporting

confidence: 82%

“…Consistent with Brennan and Copeland (1988), PRZCE is positively related to CAR. TARGET is inversely related to CAR, supporting Brennan and Copeland (1988) and McNichols and Dravid (1990). This result indicates that target share price is determined such that it reveals management's inside information.…”

Section: Test Of Hypothesissupporting

confidence: 82%

“…Because stock splits have no direct implications for the firm's investment or financing decisions, the positive reaction must be attributable to the information effect of stock splits. Brennan and Copeland (1988) and Brennan and Hughes (1991) address this information effect. They develop signaling models in which stock splits convey management's inside information to the market.…”

Section: Introductionmentioning

confidence: 98%

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Insider ownership and signals: evidence from stock split announcement effects

Han

Suk

1998

The Financial Review

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This study examines whether investors regard the level of insider ownership of a firm as useful for evaluating stock split decisions. Results show that the abnormal returns at the announcement of stock splits are positively related to the level of insider ownership. The results prevail even after controlling for other relevant factors. Further analysis indicates the positive relation exists for small f i s , but not for large firms. This indicates the market evaluates stock split decisions within the context of both insider ownership and information asymmetry.

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Section: Test Of Hypothesissupporting

confidence: 82%

Section: Test Of Hypothesissupporting

confidence: 82%

Section: Introductionmentioning

confidence: 98%

See 1 more Smart Citation

Insider ownership and signals: evidence from stock split announcement effects

Han

Suk

1998

The Financial Review

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“…The signal is credible as by selling fewer shares in the IPO the founder bears the costs of holding an undiversified portfolio. Likewise, Born (1988) argues that insider ownership is important when assessing dividend signals. The validity of the signal can be checked ex ante in the case where a proportion of the managers' ownership cannot be sold until after the performance of the firm can be observed.…”

Section: Theories On Dividend Changesmentioning

confidence: 99%

When do German Firms Change Their Dividends?

2003

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Anecdotal evidence suggests that the dividend policy of German firms is more flexible than the one of their Anglo-American counterparts. This paper analyses the decision to change the dividend for a panel of 221 German firms from 1984 to 1994. The choice of the period of study is motivated by the fact that at the start of this period there was an economic boom which was followed by a recession. Consistent with the traditional dividend literature, e.g. Lintner (1956), net earnings are key determinants of the decision to change the dividend. However, the study comes up with two findings which are contrary to Lintner (1956) and Miller and Modigliani (1961). First, the level of net earnings is not the only key determinant of the dividend decision, as the occurrence of a loss -whatever its magnitude -has an explanatory power exceeding the one of the level of the loss. Second, dividend cuts or omissions tend to be temporary and the majority of German firms quickly (within two years) revert to their initial dividend level. This stands in marked contrast with DeAngelo et al. (1992) who find that US firms are more likely to reduce their dividend when earnings deteriorate on a permanent basis. Furthermore, the fact that German firms frequently omit and cut their dividend and quickly return to their initial dividend suggests that dividends in Germany have less of a signalling role than dividends in the US and the UK. Our findings also contradict Bhattacharya's (1979) argument that the costs of dividend changes are asymmetric with dividend reductions being more costly to the firm than dividend increases. Finally, we find evidence that firms with banks as their major shareholder are more willing to omit their dividend than firms controlled by other types of shareholder. Acknowledgements When do German firms change their dividends?ABSTRACT Anecdotal evidence suggests that the dividend policy of German firms is more flexible than the one of their Anglo-American counterparts. This paper analyses the decision to change the dividend for a panel of 221 German firms from 1984 to 1994. The choice of the period of study is motivated by the fact that at the start of this period there was an economic boom which was followed by a recession. Consistent with the traditional dividend literature, e.g. Lintner (1956), net earnings are key determinants of the decision to change the dividend. However, the study comes up with two findings which are contrary to Lintner (1956) and Miller and Modigliani (1961). First, the level of net earnings is not the only key determinant of the dividend decision, as the occurrence of a loss -whatever its magnitude -has an explanatory power exceeding the one of the level of the loss. Second, dividend cuts or omissions tend to be temporary and the majority of German firms quickly (within two years) revert to their initial dividend level. This stands in marked contrast with DeAngelo et al. (1992) who find that US firms are more likely to reduce their dividend when earnings deteriorate on a permanent basi...

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“…Most investigations on this issue have been 1 Several studies have examined the dividend announcement effect in other contexts by studying trading volume patterns around the dividend news (Richardson et al, 1986), insider trading around the dividend news (Born, 1988;Oppenheimer and Dielman, 1989;John and Lang, 1991), the impact of dividends on the market response to earnings disclosures (Venkatesh, 1989), price volatility around the announcement of dividends (Venkatesh, 1989), revisions to analysts' forecasts (Ofer and Siegel, 1987) and the impact of dividend announcements on bond prices (Handjinicolaou and Kalay, 1984). conducted using U.S. data and are limited to either extreme divided changes such as dividend initiations and omissions (Healy and Palepu, 1988) or to dividend reductions (De Angelo et al, 1992;Jensen and Johnson, 1995).…”

Section: Introductionmentioning

confidence: 99%

The post–announcement performance of dividend–changing companies: The dividend–signalling hypothesis revisited

Gunasekarage

Power

2002

Accounting & Finance

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This study revisits the dividend-signalling hypothesis by examining the postannouncement performance of U.K. companies which disclose dividend and earnings news to the capital market on the same day. For this purpose, we first analyse market-adjusted excess returns for three periods around the announcement and then examine the financial performance in the year of the announcement and in the subsequent five-year period. The near announcement excess returns and the announcement-year financial profiles provide strong evidence in support of the dividend-signalling hypothesis. However, in contrast to the predictions of the hypothesis, the longer-term results suggest that the companies which announce a reduction in both dividends and earnings (bad news companies) outperform their dividend-increasing counterparts.

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Insider Ownership and Signals: Evidence from Dividend Initiation Announcement Effects

Cited by 31 publications

References 15 publications

Insider ownership and signals: evidence from stock split announcement effects

Insider ownership and signals: evidence from stock split announcement effects

When do German Firms Change Their Dividends?

The post–announcement performance of dividend–changing companies: The dividend–signalling hypothesis revisited

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