Signalling with Dividends? The Signalling Effects of Dividend Change Announcements: New Evidence from Europe

73 Pages Posted: 9 Jan 2007

See all articles by Elisabete Simões Vieira

Elisabete Simões Vieira

Instituto Superior de Contabilidade e Administracao da Universidade de Aveiro (ISCA-UA)

Clara C. Raposo

ISEG Lisbon School of Economics & Management

Date Written: January 2007

Abstract

The dividend policy is one of the most debated topics in the finance literature. One of the different lines of research on this issue is based on the information content of dividends, which has motivated a significant amount of theoretical and empirical research.

According to the dividend signalling hypothesis, dividend change announcements trigger share returns because they convey information about management's assessment on firms' future prospects. We start by analysing the classical assumptions of dividend signalling hypothesis. The evidence gives no support for a positive relation between dividend change announcements and the market reaction for French firms, and only a weak support for the Portuguese and the UK firms. After accounting for non-linearity in the mean reversion process, the global results do not give support to the assumption that dividend change announcements are positively related with future earnings changes.

Afterwards, we formulate two hypotheses in order to explore the window dressing phenomenon and the maturity hypothesis, finding some evidence, especially in the UK market, for both of the phenomenon.

Keywords: Cash Dividends, Signalling Hypothesis, Maturity Hypothesis

JEL Classification: G35, G32

Suggested Citation

Vieira, Elisabete Fátima Simões and Raposo, Clara C., Signalling with Dividends? The Signalling Effects of Dividend Change Announcements: New Evidence from Europe (January 2007). Available at SSRN: https://ssrn.com/abstract=955768 or http://dx.doi.org/10.2139/ssrn.955768

Elisabete Fátima Simões Vieira (Contact Author)

Instituto Superior de Contabilidade e Administracao da Universidade de Aveiro (ISCA-UA) ( email )

Aveiro
Portugal

Clara C. Raposo

ISEG Lisbon School of Economics & Management ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

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