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|Title:||Market Reactions to Dividend Announcements: Temporary or Temporal (Risk Stability, Signalling, Beta)|
|Department / Program:||Finance|
|Degree Granting Institution:||University of Illinois at Urbana-Champaign|
|Abstract:||This study examines the possibility that the market changes its assessment of a firm's systematic risk as a result of the dividend signal. When the signal is given, the market perceives the firm's revised expected cash flows. The newly revealed incremental cash flows may interact with the old cash flows so as to effect changes in systematic risk. Mechanisms are examined whereby the market may assess not only the magnitude of the expected future cash flows but also their incremental interaction with the old cash flows and thereby effect changes in risk.
The market's response to dividend announcements is examined empirically by examining changes in systematic risk around isolated dividend announcements in which the size of the dividend differed from that which the market expected by more than ten percent. The market responses for this group are compared with the market responses to announcements in which the size of the dividend paid did not differ from market expectations. Market expectations are assumed to be mirrored by the Value Line forecast immediately prior to the dividend announcement. Scholes-Williams betas are estimated prior to and following the dividend announcements. Parametric and non-parametric tests are used to test for changes in risk.
The results indicated that the market reduced its assessment of systematic risk when the size of the dividend payment was anticipated by the market. However, when the size of the dividend differed from market expectations, the evidence does not indicate that on average the market reduces its assessment of a firm's risk. The evidence is consistent with other studies in which it was observed that a firm's total risk increased prior to an earnings announcement and then declined at the announcement date. If the "usual" market reaction to dividend announcements is a downward adjustment in systematic risk, then this study has demonstrated an "unusual" market reaction to unanticipated dividend payments--no change in systematic risk.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1985.
|Date Available in IDEALS:||2014-12-16|