Dividend changes and stock price informativeness

Abstract

We investigate how private information in stock prices impacts quarterly dividend changes. We find that the positive relationship between past returns and current dividend changes strengthens when returns convey more private information. This finding is robust to the use of several price informativeness measures and the inclusion of managerial private information and stock overvaluation measures. Managers seem to learn new information from stock prices that they use when deciding on their dividend policy. This study highlights private information in stock prices as an important determinant of dividend policy and contributes to the literature on the real effects of financial markets.

Merger & Acquisition and Capital Expenditure in Health Care

“…Due to limited space, we only report the coefficient estimates of ψ × Q using the same regression models as in panel A. These regression models are models (3), (6), and (9). In the Drugs category, findings indicate managers learn from financial markets in both CAPEX and M&A investments.…”

“…17 Recent studies employ similar measures of stock return nonsynchronicity to proxy for stock price firm-specific information. 6,14,[16][17][18][19][20][21][22] We require at least 100 daily stock return observations during the last fiscal year to ensure explanatory power. One concern of our study is whether the primary results are sensitive to the particular measure of stock price informativeness.…”

“…It extends from CAPEX to cash savings, dividend payments, seasoned equity issuance, labor investment, and M&A investment. [4][5][6][7][8][9][10] These studies argue that when stock prices reflect more firm-specific information, managers make corporate decisions that are more aligned with the value of firm fundamentals and therefore achieve higher operating performance. Among all these studies on stock price informativeness, no such study has focused on a particular industry.…”

Information processing costs and stock price informativeness: Evidence from the XBRL mandate

“…In addition, this study is different to Dong et al (2016) in that we examine price informativeness from three independent perspectives. Apart from the commonly used idiosyncratic volatility for firm-specific information acquisition (De Cesari and Huang-Meier, 2015; Ferreira et al, 2011; Gul et al, 2011; Yu, 2011), we also consider a illiquidity measure using price impact (Blankespoor et al, 2014; Li et al, 2012; Pastor and Stambaugh, 2003), and a measure for analysts forecast accuracy (Felo et al, 2018; Lee and Liu, 2011). Finally, in addition to the information acquisition channel documented by Dong et al (2016) that leads to more informative prices, we incorporate the recent finding of Blankespoor (2019) to show the information disclosure as a parallel channel also attributable to greater price informativeness.…”

Business strategy, stock price informativeness, and analyst coverage efficiency

“…Managers can extract valuable information about the prospects of their own firms from observing stock prices (Hayek, 1945) and use such information to guide corporate decisions. (Chen, Goldstein, & Jiang, 2007; De Cesari & Huang‐Meier 2015). In this study, we adopt Miles and Snow (1978, 2003) business strategy classification which defines three strategies, namely, defenders that focus on cost control and maintain stable market shares for a narrow set of products, prospectors that seek high growth rates and constantly update their products and services through innovation, and analyzers that blend the characteristics of defenders and prospectors.…”