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Analysts' Dividend Forecasts and Dividend Signaling

Upinder Dhillon

SUNY at Binghamton - School of Management

Kartik Raman

Bentley University

Gabriel G. Ramirez

Kennesaw State University - Michael J. Coles College of Business

June 2003

This study complements existing research on the information content of dividends by focusing on the use of dividend expectations. We derive a measure of unexpected dividend changes, called dividend surprises, based on Value Line forecasts. Our results highlight a potentially serious sample misclassification arising from the extensively used naive dividend change method. Classifications of unexpected changes in dividends using dividend surprises result in stock price reactions and earnings changes that are consistent with the implications of dividend signaling models. Also, the approach followed in this paper permits the analysis of a significantly "forgotten" sample in previous event studies: Firms announcing no dividend changes in which investors (analysts) are expecting a change. We find that no change in dividends often reflects a negative dividend surprise and is indeed associated with negative stock price reaction and negative earnings changes. We provide evidence that the failure to find a relationship between dividend changes and future earning changes may be due to measurement error arising from misclassification of dividend changes. One implication of this study for future research is that empirical tests of dividend signaling models should incorporate dividend forecasts.

Number of Pages in PDF File: 34

JEL Classification: G35, G12, G29

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Date posted: September 24, 2003  

Suggested Citation

Dhillon, Upinder and Raman, Kartik and Ramirez, Gabriel G., Analysts' Dividend Forecasts and Dividend Signaling (June 2003). Available at SSRN: https://ssrn.com/abstract=420782 or http://dx.doi.org/10.2139/ssrn.420782

Contact Information

Upinder S. Dhillon
SUNY at Binghamton - School of Management ( email )
Binghamton, NY 13902-6015
United States
607-777-4381 (Phone)
607-777-4422 (Fax)
Kartik Raman
Bentley University ( email )
175 Forest Street
Waltham, MA 02154
United States
Gabriel G. Ramirez (Contact Author)
Kennesaw State University - Michael J. Coles College of Business ( email )
1000 Chastain Road
Kennesaw, GA 30144
United States
770-423-6181 (Phone)
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References:  48
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