Dividend changes, abnormal returns, and intra-lndustry firm valuations

Michael Arthur FIRTH

    Research output: Journal PublicationsJournal Article (refereed)

    74 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)189-211
    Number of pages23
    JournalJournal of Financial and Quantitative Analysis
    Volume31
    Issue number2
    DOIs
    Publication statusPublished - 1 Jun 1996

    Fingerprint

    Firm valuation
    Dividends
    Information transfer
    Abnormal returns
    Industry
    News
    Stock prices
    Dividend signalling
    Stock returns
    Stock price performance
    Earnings growth
    Surprise
    Empirical research
    Dividend announcements

    Cite this

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    title = "Dividend changes, abnormal returns, and intra-lndustry firm valuations",
    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.",
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    Dividend changes, abnormal returns, and intra-lndustry firm valuations. / FIRTH, Michael Arthur.

    In: Journal of Financial and Quantitative Analysis, Vol. 31, No. 2, 01.06.1996, p. 189-211.

    Research output: Journal PublicationsJournal Article (refereed)

    TY - JOUR

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    AU - FIRTH, Michael Arthur

    PY - 1996/6/1

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    N2 - 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.

    AB - 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.

    UR - http://commons.ln.edu.hk/sw_master/2520

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    M3 - Journal Article (refereed)

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    SN - 0022-1090

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