This study examines the contagion effects of dividend reduction or omission announcements in the electric utility industry. Using a series of ten electric utility dividend announcements covering the period 1979-1991, I analyze differences in contagion reactions across utilities. I find the strength of the contagion reaction is significantly related to utility size, average dividend yield, debt ratio, market-to-book ratio, cash flow, and Altman's Z-score. There is also evidence of a flight to quality, including a preference for utilities operating in more favorable regulatory environments.

In this study I compare the common share price reaction to dividenddecrease announcements by public utilities with the share price reaction to dividenddecrease announcements by unregulated firms. Regressing cumulative prediction errors from an event study methodology on firm characteristics, the empirical evidence shows that dividend decreases by public utilities prompt stronger negative market reactions than similar announcements by unregulated firms, even when yield, yield change, firm size, and Tobin's Q differences are considered.I wish to thank Kathleen Carroll, an anonymous reviewer, and Robert Hansen, executive editor of the JFR, for valuable comments and suggestions. 407

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