Dividend Signaling: Evidence from Bank IPOs

42 Pages Posted: 17 Oct 2008

See all articles by Marcia Millon Cornett

Marcia Millon Cornett

Bentley University - Department of Finance

Alex Fayman

University of Central Arkansas

Alan J. Marcus

Boston College - Department of Finance

Hassan Tehranian

Boston College - Department of Finance

Date Written: June 12, 2008

Abstract

Post-IPO banks are far more likely to initiate dividends than nonfinancial firms. Moreover, dividend initiation has a major impact on the ultimate disposition of a newly public bank, increasing its likelihood of subsequent acquisition by around 40 percent and reducing the expected time until acquisition by 92 percent. Further, conditional on being acquired, dividend initiation significantly increases the takeover premium. Average premiums for post-IPO dividend initiators exceed those on non-dividend payers by about 50 percent of the market value of the bank in the month prior to the takeover announcement. Positive associations between bank performance and dividend initiation and between dividend initiation and both takeover likelihood and premium appear consistent with a signaling role for dividends. Dividend initiation seems to speed up and amplify the rewards to owners that may be reaped through an ultimate sale of the institution.

Keywords: dividends, signaling, banks, IPOs

JEL Classification: G21, G35

Suggested Citation

Cornett, Marcia Millon and Fayman, Alex and Marcus, Alan J. and Tehranian, Hassan, Dividend Signaling: Evidence from Bank IPOs (June 12, 2008). Available at SSRN: https://ssrn.com/abstract=1147118 or http://dx.doi.org/10.2139/ssrn.1147118

Marcia Millon Cornett

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Alex Fayman

University of Central Arkansas ( email )

Conway, AR 72035-0001
United States
5014505336 (Phone)

Alan J. Marcus (Contact Author)

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
617-552-2767 (Phone)
617-552-0431 (Fax)

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

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