Are Dividend Changes a Sign of Firm Maturity?

Posted: 22 Jul 2003

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Bhaskaran Swaminathan

LSV Asset Management

Abstract

Firms that increase (decrease) dividends experience a significant decline (increase) in their systematic risk. The dividend-increasing firms do not increase their capital expenditure and experience a decline in profitability in the years after the dividend change. The positive market reaction to a dividend increase is significantly related to the subsequent decline in systematic risk. In the long run, the dividend-increasing firms with the largest decline in systematic risk also experience the largest increase in price over the next three years, suggesting that the market reaction to dividend changes may not incorporate the full extent of the decline in the cost of capital associated with dividend changes.

Suggested Citation

Grullon, Gustavo and Michaely, Roni and Swaminathan, Bhaskaran, Are Dividend Changes a Sign of Firm Maturity?. The Journal of Business, Vol. 75, No. 3, July 2002, Available at SSRN: https://ssrn.com/abstract=313843

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Roni Michaely (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Bhaskaran Swaminathan

LSV Asset Management ( email )

155 North Wacker Drive
Chicago, IL 60606
United States

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