Alternative event study methodology for detecting dividend signals in the context of joint dividend and earnings announcements

Abstract

Friction models are used to examine the market reaction to the simultaneous disclosure of earnings and dividends in a thin-trading environment. Friction modelling, a procedure using maximum likelihood estimation, can be used to replace both the market model and restricted least-squares regression in event studies where there are two quantifiable variables and a number of possible interaction effects associated with the news that constitutes the study's event.The results indicate that the dividend signal can be separated from the earnings signal.

To Be Rated or To Be Indexed: Corporate Governance Rating Experience in Borsa Istanbul

“…Similarly, Eddy and Seifert (1992) argue that the stock price reaction to two contemporaneous announcements is greater than the reaction to just one signal. Alongside this US-based research, Easton (1991), Lonie et al (1996), McCluskey et al (2006), Dasilas et al (2008), Anderson (2009), Al-Yahyaee et al (2011) and Ozo and Arun (2019) confirm these findings in Australia, the UK, Ireland, Greece, New Zealand, Oman and Nigeria, respectively. In a different context, Kalaignanam and Bahadir (2013) also prove that jointly announced corporate name changes and business restructuring are significantly more informative than the sum of their individual effects.…”

“…Nayak and Prabhala, 2001) or an alternative (e.g. Anderson, 2009) form of event study, while the latter often makes use of regression analysis (e.g. Lonie et al, 1996;Al-Yahyaee et al, 2011;Ozo and Arun, 2019).…”

Event studies: A methodology review

“…Samples concentrated within any of these characteristics can easily lead to imprecise and potentially erroneous inferences. Anderson (2009) examines the effectiveness of friction modelling in dealing with biases induced by thin trading.…”

Are all dividends created equal? Australian evidence using dividend‐increase track records

“…assuming a i = 0 and b i = 1 in Eqn 7). The near-identical results for both abnormal return measures suggest that the model proposed by Anderson (2009) to deal with the thin-trading problem in the New Zealand market is not necessary in our Australian study. abnormal returns are measured over a 2-day interval from day 0 to day +1.…”