Dividend changes, abnormal returns, and intra-lndustry firm valuations
Document Type
Journal article
Source Publication
Journal of Financial and Quantitative Analysis
Publication Date
6-1-1996
Volume
31
Issue
2
First Page
189
Last Page
211
Abstract
Previous empirical research has established that dividend changes are associated with significant abnormal returns. This association is rationalized on the basis that the dividend announcement acts as a signal of future earnings. Another body of research has documented the existence of intra-industry transfers of information where news about one firm is extrapolated to other companies in the same industry. Earnings information transfers have been found to be positive in nature, with good news about one company leading to stock price increases for rival firms. Linking dividend signaling and information transfer, tests were constructed to ascertain whether the dividend change of one firm is associated with the stock price performance of other companies in the same industry. The results indicate there is some small positive information transfer. The magnitude of information transfer is related to the degree of the dividend surprise, the recent dividend history of the other companies, and correlations in stock returns between the dividend announcer and the other companies. Information transfer is found to affect earnings and earnings growth estimates of the other firms and this leads to revisions in their stock prices.
DOI
10.2307/2331179
Print ISSN
00221090
E-ISSN
17566916
Publisher Statement
Copyright © School of Business Administration, University of Washington 1996
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Firth, M. (1996). Dividend changes, abnormal returns, and intra-lndustry firm valuations. Journal of Financial & Quantitative Analysis, 31(2), 189-211. doi: 10.2307/2331179