Does the Order Between Dividend Payment and New Stock Issuance Matter to Stock Price? — Evidence from Taiwan

Abstract

I argue that paying dividends before issuing new stock can increase the stock price in the case when firms announce dividend payments and new stock issuance contemporaneously. It enables issuing firms to disentangle the agency problem of paying dividends by newly-raised funds from dividend information for new stock issuances. I employ the seasoned offerings of Taiwan listed firms as the sample, because of their practice of paying dividends once a year. The conditional event study strongly supports this argument and explains why previous studies fail to detect the information conveyed by dividends for new stock issuances.