Revisiting the Contemporaneous Signaling Effects of Earnings and Dividend Announcements

Posted: 19 Feb 2004

See all articles by Louis T. W. Cheng

Louis T. W. Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

T.Y. Leung

Hong Kong Shue Yan College

Date Written: December 30, 2003

Abstract

Existing literature suggests that earnings and its forecasts provide stronger signal than dividends about firms' future performance. We test the signaling effects of earnings and dividends under a market setting which has 1) low informativeness of earnings due to concentrated family-shareholding ownership structure; 2) low corporate transparency; and 3) no tax on dividends. Our results show significant share price reactions during earnings and dividend announcements. While the non-taxable feature of dividends does not substantially weaken its signaling effect, the low information content of earnings and low corporate transparency of firms reduce the signaling power of earnings. We find that dividend, from the perspective of the firms, is a more effective and cost-efficient channel to signal future performance.

Keywords: Earnings, dividends, information asymmetry, signaling effects

JEL Classification: D82, G12, G14, G35, M41

Suggested Citation

Cheng, Louis T. W. and Leung, T.Y., Revisiting the Contemporaneous Signaling Effects of Earnings and Dividend Announcements (December 30, 2003). Available at SSRN: https://ssrn.com/abstract=504222

Louis T. W. Cheng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

T.Y. Leung

Hong Kong Shue Yan College ( email )

10 Wai Tsui Crescent
Braemar Hill Road
North Point
Hong Kong

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