Abstract

http://ssrn.com/abstract=2234467
 
 

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Communicating Private Information to the Equity Market before a Dividend Cut: An Empirical Analysis


Thomas J. Chemmanur


Boston College - Carroll School of Management

Xuan Tian


Indiana University - Kelley School of Business - Department of Finance

February 2013

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

Abstract:     
This paper presents the first empirical analysis of the choice of firms regarding whether or not to release private information (“prepare the market”) in advance of a possible dividend cut, and the consequences of such market preparation. We use a hand-collected data set of dividend cutting firms that allows us to distinguish between prepared and non-prepared dividend cutters and test the implications of two alternative theories: the “signaling through market preparation” theory and the “stock return volatility reduction” theory. We document several important differences between prepared and non-prepared dividend cutters. Overall, our empirical results are consistent with the signaling theory.

Number of Pages in PDF File: 45

Keywords: market preparation, dividend cut, announcement returns, stock return volatility

JEL Classification: G35, D82

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Date posted: March 17, 2013  

Suggested Citation

Chemmanur, Thomas J. and Tian, Xuan, Communicating Private Information to the Equity Market before a Dividend Cut: An Empirical Analysis (February 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: http://ssrn.com/abstract=2234467 or http://dx.doi.org/10.2139/ssrn.2234467

Contact Information

Thomas J. Chemmanur
Boston College - Carroll School of Management ( email )
440 Fulton Hall
Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)
Xuan Tian (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx

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