The Information Content of Dividend Initiations: Additional Evidence
Financial Management, Vol. 27, No. 3, Autumn 1998, Special Issue: Dividends
Posted: 9 Feb 1999
We hypothesize that the initiation of cash dividends indicates that a firm?s earnings and cash flows have become fundamentally less risky. We present evidence to support this hypothesis. A sample of firms initiating dividends displays a precipitous decrease in risk immediately following the dividend announcement. Although these firms? earnings do not subsequently increase, earnings volatility is significantly lower following the dividend decision. We also find that the decrease in risk is related to the excess return observed around the dividend announcement.
JEL Classification: G12, G14, G35
Suggested Citation: Suggested Citation