The Impact of Dividend Reduction on Shareholders Wealth - Evidence from Australia

19 Pages Posted: 24 Aug 2007 Last revised: 5 Feb 2014

Balasingham Balachandran

La Trobe University -Department of Economics and Finance; Financial Research Network (FIRN)

Chandrasekar Krishnamurti

Monash University

Berty Vidanapathirana

Monash University - Department of Accounting

Date Written: August 2007

Abstract

This study examines the stock price reactions to interim and final dividend reductions in Australia. We find that the market reacts more negatively to interim dividend reductions than final dividend reductions consistent with the view that market participants anticipate deterioration in profitability of firms that eventually announce interim dividend reductions. We find that size of the dividend reduction depends on the riskiness of the firm (idiosyncratic risk), size of the firm prior year profitability and changes in the profitability. We also find that reduce dividend at the interim level rather than delay to final stage depends on the prior year profitability and size of the firm.

Keywords: price reaction, Australia, dividend cuts, omissions, interim and final

JEL Classification: G14, G35

Suggested Citation

Balachandran, Balasingham and Krishnamurti , Chandrasekar and Vidanapathirana, Berty, The Impact of Dividend Reduction on Shareholders Wealth - Evidence from Australia (August 2007). 20th Australasian Finance & Banking Conference 2007 Paper. Available at SSRN: https://ssrn.com/abstract=1009567 or http://dx.doi.org/10.2139/ssrn.1009567

Balasingham Balachandran (Contact Author)

La Trobe University -Department of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Chandrasekar Krishnamurti

Monash University ( email )

Wellington Road
Victoria, Roodepoort 3145
Australia

Berty Vidanapathirana

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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