A Note on the Stock Market Reaction to Dividend Announcements

Impson, C. Michael; Karafiath, Imre

doi:10.1111/j.1540-6288.1992.tb01317.x

Cited by 5 publications

(3 citation statements)

References 11 publications

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“…Examples of these issues include regulatory changes (Schwert 1981;Binder 1985;Chen and D'Arcy 1986;Moore and Schmit 1989;Horton and Macve 1998;Marlett and Pacini 1999), changes in business strategies (VanDerhei 1987;Impson and Karafiath 1992;Akhigbe, Borde, and Madura 1993;McNamara et al 1997;Akhigbe and Madura 2001), as well as the reporting of increases in liabilities or large losses (Sprecher and Pertl 1983;Davidson, Chandy, and Cross 1987;Baginski, Corbett, and Ortega 1991;Shelor, Anderson, and Cross 1992;Lamb 1995;Cagle 1996). In the banking area, studies such as McNichols and Wilson (1988), Beaver et al (1989), Elliot, Hanna, and Shaw (1991), Griffin and Wallach (1991), and Wahlen (1994) have analyzed the information content related to the announcements of increased reserves for loan loss reserve changes.…”

Section: Prior Literaturementioning

confidence: 98%

The Impact of Asbestos and Environmental Reserves Increases on Shareholder Wealth

Colquitt

Hoyt

McCullough

2006

North American Actuarial Journal

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Between 1992 and 2001 significant reserves increase announcements were made by several major property/liability insurers. These reserves increases were for the purpose of recognizing expected asbestos and environmental (A&E) liability. Although most analysts agree that U.S. insurers are underreserved for asbestos and environmental liability, how the market reacts to an insurer's announcement of an increase in these reserves has not been analyzed. An insurer that is significantly underreserved is likely to be viewed by the market as lacking financial stability for the long term. However, when a company increases its reserves, there is a charge to income and a reduction in capital. If surplus is diminished sufficiently as a result of the increased reserving, regulatory attention and eroding shareholder and market confidence could result as well. By calculating the sample insurers' cumulative abnormal returns surrounding the largest asbestos and environmental reserves increase announcements made between 1992 and 2001, the study estimates and documents the market's reaction to these reserves increase announcements. We further explore the potential impact of additional asbestos and environmental liability exposure reporting requirements. Starting with 1995 statutory annual accounting statements, Footnote 24 required additional reporting by insurers of their asbestos and environmental liability exposure (1995 statements were publicly available by the end of the first quarter of 1996). When looking at reserves increase announcements prior to this additional reporting requirement, we find that most insurers announcing large increases in asbestos and environmental reserves prior to 1996 experience a significant reduction in stock price in the days surrounding their announcement. However, consistent with the notion that the additional accounting disclosure requirements after 1995 (Footnote 24) provide valuable information on insurers' exposure, we find that the announcement of A&E reserves increases after 1995 had no statistically significant effect on the market value of announcing insurers.

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Section: Prior Literaturementioning

confidence: 98%

The Impact of Asbestos and Environmental Reserves Increases on Shareholder Wealth

Colquitt

Hoyt

McCullough

2006

North American Actuarial Journal

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“…Figure 3 presents the title word cloud for 34 articles published during 1982–2001 on developed markets. These articles concentrated on the “effects” of “dividend announcements” (Acker, 1999; Kato et al , 1997; K. Wang et al , 1993), “dividend cut” or “dividend omission” (Bessler and Nohel, 1996; Ghosh and Woolridge, 1988), “dividend policy” (K. Wang et al , 1993), “dividend change” (Carroll, 1995; Dhillon and Johnson, 1994; Eddy and Seifert, 1986; Firth, 1996; Woolridge, 1982), “information content” (Carroll, 1995; Woolridge, 1982) on “stock returns” (Chang and Chen, 1991; Sinclair and Young, 1991) and “stock market reaction” (Datta and Dhillon, 1993; Impson and Karafiath, 1992).…”

Section: Network Analysismentioning

confidence: 99%

Dividend announcements and stock returns: a retrospective analysis

Kumari,

Kumar,

Pandey

et al. 2023

QRFM

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Purpose This study aims to provide insights into different aspects of the extant literature on the effects of dividend announcements. Along with other outputs of a bibliometric study, this study provides deeper insights into the concentration of the extant literature and suggest future research agendas. Design/methodology/approach This study uses the bibliometric, network and content analysis of the dividend announcement literature indexed in Scopus. This study presents the temporal analysis, the network of authors, countries, author citations and the co-occurrence of author keywords. This study provides the concentration of the extant literature in three clusters and unearth some key future research areas. This study uses the latent Dirichlet allocation method for robustness. Findings A total of 54 documents examining the US sample have received 1,804 citations. Interestingly, the first article on emerging markets was published in 2002, when at least 34 articles on developed markets had already been published from 1982 to 2001. The content analysis of top-cited literature unveils diverse insights into dividend announcements’ effects on financial markets. Contagion effects negatively impact non-announcing banks, particularly larger ones. Dividend maintenance affects stock market momentum, influencing loser returns. While current dividend/earnings news may not predict future company performance, information content dominates bond market reactions to post-dividend announcements. Concomitantly, while financially constrained firms exhibit short-term gains but worse long-term performance following dividend increases, larger stock dividends send stronger market signals in China. Originality/value This study significantly contributes to the bibliometric and content analysis literature by analyzing the sample documents based on the sample examined. To the best of the authors’ knowledge, no previous bibliometric study in this domain has been conducted to explore the markets (developed and emerging) to which the samples examined belong and the quality of publications from developed and emerging markets.

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“…Theoretical and empirical literature has suggested there is a positive price reaction to dividend change, arguing that dividend increase (decrease) can be viewed as a positive (negative) signal to the market (Bhattacharya, 1979;Foster III & Vickrey, 1978;Impson & Karafiath, 1992;John & Williams, 1985;Lee, 1995;Miller & Rock, 1985). This information-effect of dividends has also been supported by Australian evidence (Brown, Finn, & Hancock, 1977).…”

Section: Market Reactions To Dividend and Other Types Of Informationmentioning

confidence: 92%

An evaluation of market responses to corporate disclosures in a continuous disclosure environment

Li¹

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<p>Corporate disclosure has attracted the attention of researchers from the accounting and capital markets. Researchers have been trying to better understand how capital markets respond to corporate disclosures. This study explores the short- and the long- term market effects of corporate disclosures in a continuous disclosure environment. This study aims to find the answers to the following research questions. (1) How market (price/volume) sensitive is the information contained in each disclosure category in a continuous disclosure environment? (2) How quickly is the value-relevant information incorporated into share prices before the annual earnings announcement is released, and how can company announcements promote this timeliness of price discovery? Specifically, this study examines the extent to which the Australian share market reacts to new public information immediately after the information is released, and the impacts of announcement frequency as to different continuous disclosure categories on the timeliness of price discovery (also known as the speed of price discovery). Prior research has mostly concentrated on a single type of information event to examine the information’s market consequences by monthly, weekly or daily data. Instead, by covering all public announcements and using tick (transaction) data to calculate intraday abnormal returns and abnormal trading volumes, this study examines which type of announcement has the largest immediate market responses, and compares the magnitude (with positive/negative signs) of market reactions to different announcement categories on the Australian Securities Exchange (ASX). This study is more attractive under the Australian Continuous Disclosure Regime (CDR) because of the classification system regarding the market-sensitive announcements. Whether or not an announcement is market-sensitive is predetermined by ASX ‘specialist staff’ before the announcement is released on the market. This study investigates how the market interprets the announcement, examining market sensitivity from both the share price and trading volume movements after the announcement is available to the market. In other words, to some extent, the ‘market sensitivity tag’ shows the announcement that the market should react to, and this study reveals the announcement that the market does react to. Focusing on market-sensitive announcements, except for the ASX Query, the significant results show a positive association between announcement categories and intraday Cumulative Abnormal Returns (CARs). Share prices react the most to Progress Reports and to Asset Acquisition & Disposal, and the least to Periodic Reports and Issued Capital. Share price reactions to Distribution Announcements and Other are in the middle. There are at least two possible reasons for the different market reaction magnitudes. One is the information materiality nature: if one type of information is more important to investors than other information, this may cause higher abnormal returns on the market. The other is the information predictability: if there has been a lot of relevant information available in previous days or months, share prices could adjust to the information more smoothly. In terms of the trading volume reactions, intraday Abnormal Trading Volumes (ATVs) are observed after the release of Progress Reports, Asset Acquisition & Disposal, Issued Capital and Periodic Reports. After separating good and bad news subsamples, the results show that Progress Reports and Asset Acquisition & Disposal tend to indicate good signs to the market and cause larger trading volumes. Periodic Reports and Issued Capital could contain either good or bad news, but the trading volumes are driven by bad news. The results also reveal that company size is an important factor. Large companies tend to have relatively small market responses after information is released, which confirms that the larger companies are more stable. This study also evaluates long-term market effects of corporate disclosures by examining the timeliness of price discovery (also known as the speed of price discovery). It is the timeliness with which the full value relevant information is priced over a year before the annual earnings announcement is released. Previous literature has revealed that earnings announcements convey information, because significant stock returns or increased trading volumes are observed around the time that earnings announcements are released. However, it has also been suggested that there are other more timely information sources available that contain essentially similar or even the same value-relevant information. By the time preliminary final reports become available to the market, any potential value-relevant information has been included in the share price. The CDR again provides an attractive environment to examine the impact of corporate disclosures on the timeliness of price discovery, because listed companies have to disclose to the market before any other media sources. This enables an exploration of the relationship between the timeliness and the frequency of continuous disclosures. If the CDR is efficient in keeping investors fully informed, there should be no stock price surprise after the earnings announcement is released. Given the importance of the Preliminary Final Reports to the timeliness metric and the fact that the immediate market reaction tests only cover announcements released during trading hours, this study investigates in depth the Preliminary Final Reports and finds some evidence that companies tend to release bad news after the market closes and/or on Fridays. In terms of the impacts of announcement frequency on the timeliness of price discovery, following the step ‘All announcements – Periodic/Non-periodic announcements – Detailed categories of Non-periodic announcements’, the findings reveal that only earnings-related and cash flow announcements (Periodic Reports, Distribution Announcements and Quarterly Cash Flow Reports) can accelerate the timeliness of price discovery. Unfortunately, the results do not confirm that more announcements on the market could promote the timeliness with which the value-relevant (i.e. earning/income) information is incorporated into share prices. In addition to announcement frequency influences, the price discovery process is faster for companies with better share performance, are larger or have greater profitability. Financial companies have a timelier price discovery process than other companies; the price discovery process of financial companies was affected more by the 2008 – 2010 Global Financial Crisis than that of other companies. This study contributes to the market reaction literature by covering all categories of company announcements and comparing immediate market consequences for each type of announcement, and builds upon the timeliness of the price discovery literature by linking the announcement frequency of each continuous disclosure category to the timeliness with which annual earnings information is incorporated into share prices.</p>

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A Note on the Stock Market Reaction to Dividend Announcements

Cited by 5 publications

References 11 publications

The Impact of Asbestos and Environmental Reserves Increases on Shareholder Wealth

The Impact of Asbestos and Environmental Reserves Increases on Shareholder Wealth

Dividend announcements and stock returns: a retrospective analysis

An evaluation of market responses to corporate disclosures in a continuous disclosure environment

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