Dividend Initiations and Long Run IPO Performance

32 Pages Posted: 6 Dec 2010 Last revised: 2 Feb 2011

See all articles by Janice C. Y. How

Janice C. Y. How

Queensland University of Technology; Financial Research Network (FIRN)

Kian Ngo

FKP

Peter Verhoeven

Queensland University of Technology - QUT Business School; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: November 29, 2010

Abstract

Dividend initiations are an economically significant event that has important implications for a firm’s future financial capacity. Given the market’s expectation of a consistent payout, managers of IPO firms must approach the initial dividend decision cautiously. We compare the long run performance of IPO firms that initiated a dividend with that of similarly-matched non-payers, and find robust results that firms which initiated a dividend perform significantly better up to five years after the initiation date. Further tests show that the post-initiation firm performance is explained mostly by dividend theory of signalling rather than free cash flow.

Keywords: Dividend initiation, IPOs, signalling, free cash flows, long run performance

JEL Classification: G35

Suggested Citation

How, Janice C. Y. and Ngo, Kian and Verhoeven, Peter, Dividend Initiations and Long Run IPO Performance (November 29, 2010). Finance and Corporate Governance Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1717200 or http://dx.doi.org/10.2139/ssrn.1717200

Janice C. Y. How

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

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

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

Kian Ngo

FKP ( email )

Level 5, 120 Edward Street
Brisbane, QLD4000
Australia

Peter Verhoeven (Contact Author)

Queensland University of Technology - QUT Business School ( email )

GPO Box 2434
Brisbane, Queensland 4001
Australia

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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