The Information Content of Dividend Surprises: Evidence from Germany

Abstract

This paper reconsiders the issue of share price reactions to dividend announcements. We use the difference between the actual dividend and the analyst consensus forecast as obtained from I/B/E/S as a proxy for the surprise in the dividend announcement. Using data from Germany, we find significant share price reactions after dividend announcements. We use panel methods to analyze the determinants of the share price reactions and find evidence in favour of the cash flow signaling hypothesis and dividend clientele effects. We further find that the price reaction to dividend surprises is related to the ownership structure of the firm. The results do not support the free cash flow hypothesis. An additional result of our analysis is that dividend changes are not an appropriate measure to capture the information content of dividend announcements.

Ownership Concentration, Dividend Payout and Firm Performance: The Case of Malaysia

“…De Cesari (2012) also agreed that ownership concentration is positively associated with dividend payout, which prevents the conflict between controlling and minority shareholders. Contrary to this, Andres, Betzer, Bongard, Haesner, and Theissen (2013) indicated that ownership concentration affects dividend payout, depending on the type of controlling shareholders among German firms. Based on the above discussions, the hypothesis is thus developed as follows:…”

Does Family Control Shape Corporate Capital Structure? An Empirical Analysis of Eurozone Firms

“…With respect to the different ownership structures that corporations have, the finance literature shows increasing interest in the family business model due to its peculiarities. In terms of agency relationships, concentrated ownership and the predominance of family control imply greater concern over conflicts of interests between dominant shareholders and minority outside investors (Burkart et al., ; and Andres et al., ), as opposed to the classical owner–manager agency problem. In this respect, a number of empirical studies investigate the differences between family and non‐family firms in terms of firm performance (see, e.g., Anderson and Reeb, ; Maury, ; Villalonga and Amit, ; and Andres, ).…”

Stock market reactions to dividend and earnings announcements in a tax‐free environment

“…Although extensive empirical studies (e.g., Aharony & Swary, ; Al‐Yahyaee et al, ; Easton, ; Kane et al, ; Kumar, ; Lonie et al, ; Michaely, Thaler, & Womack, ; Pettit, ; Sumanna, ) have addressed whether changes in dividend levels convey important information to market participants (the signalling theory), the evidence is mixed. On one hand, consistent with the signalling theory, several studies found that the stock market reacts positively (negatively) to announcements of dividend increases (decreases) (e.g., Aharony & Swary, ; Andres, Betzer, Bongard, Haesner, & Theissen, ; Dasilas & Leventis, ; McClusky, Burton, Power, & Sinclair, ; Pettit, ), unexpected dividend increases (decrease) (e.g., Woolridge, ), stock split announcements (e.g., Liljeblom, ), and dividend initiations (omissions) (e.g., Michaely et al, ).…”