Market reaction to announcements of dividend increases : is it weakening with time?
type: CreativeWork
description: This study examines the market’s reaction to announcements of dividend increases. In particular, it considers the factors that affect the magnitude of abnormal returns during the days that surround announcements of dividend increases. The objective is to find whether the market reaction to dividend increases has weakened with the passage of time and whether market conditions affect the reaction. Eventually, this study is expected to reveal whether dividends continue to be important to investors. This research is motivated by the findings of Fama and French (2001). They suggest that since 1978 firms have had a declining propensity to pay dividends. They propose that dividends are declining as a result of the ease by which investors can make homemade dividends through selling small portions of their holdings. They argue that recent market developments, particularly the introduction of negotiated commissions and discount brokers, have made homemade dividends easier and less costly. Their results may suggest that investors are now less interested to receive dividends than in the past. One objective of this study is to examine whether investor’s preferences regarding dividend payments have changed over time. This is accomplished by measuring the abnormal returns following announcements of dividend increases. Benartzi, Michaely, and Thaler (1997) suggest that the reaction of the market to dividend increases is an acceptable method of determining the value of dividends to investors. In addition, this study explores the theoretical factors that may affect dividend valuation. Previous studies, such as Allen, Bernardo and Welch (2000), suggest that the existence of debt holders and institutional investors reduce the potential for agency costs as these stakeholders monitor managers. In contrast, Jensen (1986) suggests that high cash flows make it easier for managers to spend on perquisites and empire building. Thus, the potential for agency costs increases. Therefore, paying d…
abstract: This study examines the market’s reaction to announcements of dividend increases. In particular, it considers the factors that affect the magnitude of abnormal returns during the days that surround announcements of dividend increases. The objective is to find whether the market reaction to dividend increases has weakened with the passage of time and whether market conditions affect the reaction. Eventually, this study is expected to reveal whether dividends continue to be important to investors. This research is motivated by the findings of Fama and French (2001). They suggest that since 1978 firms have had a declining propensity to pay dividends. They propose that dividends are declining as a result of the ease by which investors can make homemade dividends through selling small portions of their holdings. They argue that recent market developments, particularly the introduction of negotiated commissions and discount brokers, have made homemade dividends easier and less costly. Their results may suggest that investors are now less interested to receive dividends than in the past. One objective of this study is to examine whether investor’s preferences regarding dividend payments have changed over time. This is accomplished by measuring the abnormal returns following announcements of dividend increases. Benartzi, Michaely, and Thaler (1997) suggest that the reaction of the market to dividend increases is an acceptable method of determining the value of dividends to investors. In addition, this study explores the theoretical factors that may affect dividend valuation. Previous studies, such as Allen, Bernardo and Welch (2000), suggest that the existence of debt holders and institutional investors reduce the potential for agency costs as these stakeholders monitor managers. In contrast, Jensen (1986) suggests that high cash flows make it easier for managers to spend on perquisites and empire building. Thus, the potential for agency costs increases. Therefore, paying d…
author: Norton, Mark
language: en_US
keywords: dividend valuation, dividend history, dividend theory
date published: 2008-04-24
date modified: 2026-07-24T04:26:45Z
provider: University of Saskatchewan
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: University of Saskatchewan

PropertyValue
property ID: Handle
value: https://hdl.handle.net/10388/etd-04232008-123752