Dividend Reductions and Interim Effect: UK Evidence

26 Pages Posted: 25 Aug 1998

See all articles by Balasingham Balachandran

Balasingham Balachandran

Dept of Economics, Finance and Marketing, La Trobe Business School, La Trobe University; Financial Research Network (FIRN)

Date Written: July 1998

Abstract

Short-term price reactions to dividend reductions of UK firms that did not reduce their dividends in the previous three-year period are studied. Price reactions to interim and final dividend reductions are found to be significantly negative and stronger for interim dividend reductions. Though market reacted negatively around final dividend reduction announcements it bounced back to its prior level within one month of announcements. The magnitude of price reactions to dividend reductions is found to be statistically related to the size of the dividend reduction, the post-announcement effect from day 2 to day 20, the gearing ratio and dummy variable interim versus final dividend reduction. Interim dividend reductions were found to have incremental information about future annual earnings changes. No incremental information content was found for the final dividend reductions; however, they have information content when included as the only independent variable.

JEL Classification: G14, G35

Suggested Citation

Balachandran, Balasingham, Dividend Reductions and Interim Effect: UK Evidence (July 1998). Available at SSRN: https://ssrn.com/abstract=114990 or http://dx.doi.org/10.2139/ssrn.114990

Balasingham Balachandran (Contact Author)

Dept of Economics, Finance and Marketing, La Trobe Business School, La Trobe University ( email )

Dept of Economics, Finance and Marketing,
La Trobe Business School, La Trobe University
Bundoora, Victoria 3086
Australia
+61394793103 (Phone)

Financial Research Network (FIRN)

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

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

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