Dividend Resumption, Future Profitability and Stock Returns

University of Southampton Working Paper No. CRR-05-06

30 Pages Posted: 2 Dec 2005

See all articles by Owain Ap Gwilym

Owain Ap Gwilym

Bangor Business School

James Seaton

University of Southampton - School of Management

Stephen Thomas

University of Southampton - School of Management

Date Written: June 6, 2005

Abstract

We present a new approach to examining the dividend signalling hypothesis by investigating dividend resumptions by former payers. Evidence regarding the signalling hypothesis has been mixed to date. In support of previous work, we fund that dividend policy is sticky, whereby the achievement of profitability does not necessarily lead to the resumption of dividend payment. We find no evidence of future growth in profitability following the resumption of dividend payment, but some evidence of a negative effect in the following two years, which is clearly inconsistent with dividend signalling theory. Firms resuming dividend payment fail to achieve significant excess stock returns in the three years after the dividend decision.

Suggested Citation

ap Gwilym, Owain and Seaton, James and Thomas, Stephen, Dividend Resumption, Future Profitability and Stock Returns (June 6, 2005). University of Southampton Working Paper No. CRR-05-06 . Available at SSRN: https://ssrn.com/abstract=860285 or http://dx.doi.org/10.2139/ssrn.860285

Owain Ap Gwilym (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

HOME PAGE: http://www.bangor.ac.uk/business/staff/owain_ap_gwilym.php.en

James Seaton

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

Stephen Thomas

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

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