The Effects of Shifting Dividend Regimes: An International Examination of the REIT Effect
Posted: 1 Dec 2010
Date Written: November 29, 2010
This paper examines the effects of a drastic change in dividend payout policy on both the return and risk of firms stock. We focus on the listed real estate markets of Japan, U.K and U.S. where the adoption of a Real Estate Investment Trust (REIT) standard has imposed a payout policy of 90 percent of taxable income. This exogenous shift in the dividend regime allows us to empirically test asymmetric information and incomplete contract theories. In line with signaling models, our event study results show that after the REIT adoption, dividend announcements are no longer accompanied by significant stock price reactions. Moreover, the results of our risk decomposition analysis tell us that the increased dividend payout has lowered the discount rate risk of firms, which supports theories are based on agency-induced imperfections.
JEL Classification: G3
Suggested Citation: Suggested Citation