Article1983

Market Responses to Dividend Increases and Changes in Payout Ratios

72 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

The effect of dividends on the valuation of securities has been a controversial subject in financial research in recent years. Since Miller and Modigliani [8] demonstrated the irrelevance of dividend policy, researchers have tested and attempted to explain market price reaction to firms’ dividend decisions. Explanations of market reactions to dividend policyhave centered around information issues and tax effects. Information issues have been empirically investigated by examining market reactions to announcements of dividend changes. The effect of differential tax treatments of dividends and capital gains usually has been examined through cross-sectional regression testing the significance of dividend yield in explaining returns. Any market return study of dividends, however, should consider both the potential information effect and the tax effect.

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References

1961Dividend Policy, Growth, and the Valuation of Shares 1979Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy 1977Estimating betas from nonsynchronous data 1979The effect of personal taxes and dividends on capital asset prices 1980Quarterly Dividend and Earnings Announcements and Stockholders' Returns: An Empirical Analysis 1974The effects of dividend yield and dividend policy on common stock prices and returns 1970Marginal Stockholder Tax Rates and the Clientele Effect 1978Dividends and taxes

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