Dividend Initiations and Long Run IPO Performance
Janice C. Y. How
Queensland University of Technology; Financial Research Network (FIRN)
Queensland University of Technology - Faculty of Business; Financial Research Network (FIRN)
November 29, 2010
Finance and Corporate Governance Conference 2011 Paper
Dividend initiations are an economically significant event that has important implications for a firm’s future financial capacity. Given the market’s expectation of a consistent payout, managers of IPO firms must approach the initial dividend decision cautiously. We compare the long run performance of IPO firms that initiated a dividend with that of similarly-matched non-payers, and find robust results that firms which initiated a dividend perform significantly better up to five years after the initiation date. Further tests show that the post-initiation firm performance is explained mostly by dividend theory of signalling rather than free cash flow.
Number of Pages in PDF File: 32
Keywords: Dividend initiation, IPOs, signalling, free cash flows, long run performance
JEL Classification: G35working papers series
Date posted: December 6, 2010 ; Last revised: February 2, 2011
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