Dividend Reductions, The Timing of Dividend Payments and Information Content
40 Pages Posted: 22 Feb 2012 Last revised: 22 Apr 2013
Date Written: August 5, 2012
Australian companies pay dividends semi-annually with smaller “interim” payments and larger “final” payments. Interim dividends are declared and paid within a less full information environment than final dividends. We analyze the interactions between the timing of dividends and their information content, controlling for share repurchase and tax effects. Dividend reductions that are not associated with share repurchases are statistically significantly related to future abnormal earnings and provide strong support for the information content of dividend reductions. The percentage of dividend reduction is stronger for interim than for final dividend reductions. The market reaction is negatively related to the reduction in imputation tax credit and reacts more aggressively and negatively to interim as compared to final dividend reductions.
Keywords: Price reactions, Australia, Dividend Reductions, Information Content, Franked and Unfranked, Interim and Final
JEL Classification: G14, G35
Suggested Citation: Suggested Citation