The Post-Announcement Performance of Dividend-Changing Companies: The Dividend-Signalling Hypothesis Revisited

21 Pages Posted: 23 Dec 2002

See all articles by Abey Gunasekarage

Abey Gunasekarage

Monash University; Monash University

D.M. Power

University of Dundee

Abstract

This study revisits the dividend-signalling hypothesis by examining the post-announcement performance of U.K. companies which disclose dividend and earnings news to the capital market on the same day. For this purpose, we first analyse market-adjusted excess returns for three periods around the announcement and then examine the financial performance in the year of the announcement and in the subsequent five-year period. The near announcement excess returns and the announcement-year financial profiles provide strong evidence in support of the dividend-signalling hypothesis. However, in contrast to the predictions of the hypothesis, the longer-term results suggest that the companies which announce a reduction in both dividends and earnings (bad news companies) outperform their dividend-increasing counterparts.

JEL Classification: G35, M41

Suggested Citation

Gunasekarage, Abeyratna and Power, David M., The Post-Announcement Performance of Dividend-Changing Companies: The Dividend-Signalling Hypothesis Revisited. Accounting and Finance, Vol. 42, pp. 131-151, 2002. Available at SSRN: https://ssrn.com/abstract=320417

Abeyratna Gunasekarage (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

David M. Power

University of Dundee ( email )

Dundee, Scotland DD1 4HN
United Kingdom
(+44) 1382 344 854 (Phone)
(+44) 1382 224 419 (Fax)

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