Institutional Trading Before Dividend Reduction Announcements
46 Pages Posted: 4 May 2017 Last revised: 12 May 2017
Date Written: May 3, 2017
Using a large proprietary database of transaction-level institutional trades for the period from 1997-2011, we find that institutional investors are net sellers in dividend reduction firms during the two quarters prior to the announcements. They also trade more intensively in firms that do not prepare the market for dividend cuts or that have greater information asymmetry. Trading by both pension plan sponsors and money managers affects the market reaction to the announcements. Finally, all institutional investors earn positive profits by trading in the two quarters prior to the announcements, and money managers outperform pension plan sponsors.
Keywords: Dividend reduction announcements; Institutional trading
JEL Classification: G14, G29, G35
Suggested Citation: Suggested Citation