Price Reaction, Final Dividend Reductions and Signaling: UK Evidence

The IUP Journal of Applied Finance, Vol. 17, No. 4, pp. 26-37, October 2011

Posted: 18 Jul 2012

See all articles by Balasingham Balachandran

Balasingham Balachandran

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

Vineeta Juthani

La Trobe University

Manali Mahamuni

La Trobe University

Berty Vidanapathirana

Monash University - Department of Accounting

Date Written: July 17, 2012

Abstract

This paper provides an analysis of the relationship between final dividend reductions and price reactions around final dividend reduction announcements. The authors argue that final dividend reductions provide strong signals when they are not fully anticipated, while the price reaction is weaker when the market anticipates a reduction in the final dividend. Price reactions are dependent upon the size of final dividend reduction, the gearing ratio and prior dividend reduction. In addition, the authors find that the gearing ratio, company size, lagged earnings and current earnings change have explanatory power for the decision to determine whether to reduce annual dividend at both interim and final stages or only at the final stage.

Suggested Citation

Balachandran, Balasingham and Juthani, Vineeta and Mahamuni, Manali and Vidanapathirana, Berty, Price Reaction, Final Dividend Reductions and Signaling: UK Evidence (July 17, 2012). The IUP Journal of Applied Finance, Vol. 17, No. 4, pp. 26-37, October 2011. Available at SSRN: https://ssrn.com/abstract=2111037

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

Vineeta Juthani

La Trobe University ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

Manali Mahamuni

La Trobe University ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

Berty Vidanapathirana

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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