Long-Term Price Reaction to Dividend Reduction in an Imputation Environment – Evidence from Australia

29 Pages Posted: 3 Feb 2016

See all articles by Balasingham Balachandran

Balasingham Balachandran

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

Darren Henry

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

Berty Vidanapathirana

La Trobe University - School of Economics and Finance

Date Written: February 1, 2016

Abstract

This article empirically investigates the information content and signalling power of decreases and omissions of cash dividend payments in an imputation tax environment. Consistent with prior literature We find significantly negative long term abnormal returns subsequent to dividend reductions, with some support for less negative long term abnormal returns arising in the case of unfranked dividend reductions Overall, our study shows conclusively that dividend reductions in Australia constitute a strong signal regarding the future prospects of the firm and, as such, our results are at variance with the results obtained in the U.S. The tax system in Australia differs from that in the U.S. and we do find some evidence of differential tax effects across the franking status of dividends.

Keywords: Long-term price reaction, Australia, Dividend Reduction, decreases and omissions, Franked and unfranked, Interim and Final

Suggested Citation

Balachandran, Balasingham and Henry, Darren and Vidanapathirana, Berty, Long-Term Price Reaction to Dividend Reduction in an Imputation Environment – Evidence from Australia (February 1, 2016). 2016 Financial Markets and Corporate Governance. Available at SSRN: https://ssrn.com/abstract=2726374 or http://dx.doi.org/10.2139/ssrn.2726374

Balasingham Balachandran

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

Darren Henry

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

Department of Economics and Finance
La Trobe Business School
Bundoora 3086 Victoria
Australia

Financial Research Network (FIRN)

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

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

Berty Vidanapathirana (Contact Author)

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

Bundoora
Bundoora, Victoria 3083 3086
Australia

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