Dividend Reductions, The Timing of Dividend Payments and Information Content

40 Pages Posted: 22 Feb 2012 Last revised: 22 Apr 2013

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Chandrasekhar Krishnamurti

University of South Australia

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Berty Vidanapathirana

Monash University - Department of Accounting

Date Written: August 5, 2012

Abstract

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

Balachandran, Balasingham and Krishnamurti, Chandrasekhar and Theobald, Michael F. and Vidanapathirana, Berty, Dividend Reductions, The Timing of Dividend Payments and Information Content (August 5, 2012). Journal of Corporate Finance, DOI 10.1016/j.jcorpfin.2012.08.002, Forthcoming; Finance and Corporate Governance Conference 2010; 20th Australasian Finance & Banking Conference 2007 Paper. Available at SSRN: https://ssrn.com/abstract=2009293 or http://dx.doi.org/10.2139/ssrn.2009293

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

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

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

Chandrasekhar Krishnamurti

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

Michael F. Theobald

University of Birmingham - Department of Accounting and Finance ( email )

Birmingham B15 2TT
United Kingdom
0121 414 6678 (Fax)

Berty Vidanapathirana

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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