The Long‐run Performance Following Dividend Initiations and Resumptions: Underreaction or Product of Chance?

Boehme, Rodney D; Sorescu, Sorin M.

doi:10.1111/1540-6261.00445

Cited by 138 publications

(117 citation statements)

References 41 publications

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“…After adding UMO to the three factors, the F-statistic that tests whether the alphas are jointly equal to zero no longer rejects that null. Moreover, we also find that, relative to the three-factor model, UMO helps reduce the pricing errors of portfolios based on other corporate events that are known to produce abnormal long-run performances, such as mergers and acquisitions (Loughran and Vijh 1997), dividend initiation and resumption (Michaely, Thaler, and Womack 1995), and dividend omission (Boehme and Sorescu 2002). Overall, this evidence indicates that UMO is important for pricing stocks with a variety of Table 2. characteristics, and the anomalous returns on the corner portfolios and on other corporate-event based portfolios.…”

Section: Loadings Of Assets On Umosupporting

confidence: 51%

A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns

Hirshleifer¹,

Jiang

2010

Rev. Financ. Stud.

140

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Behavioral theories suggest that investor misperceptions and market mispricing will be correlated across firms. We use equity and debt financing to identify common misvaluation across firms. A zero-investment portfolio (UMO, undervalued minus overvalued) built from repurchase and issue firms captures comovement in returns beyond that in some standard multifactor models, and substantially improves the Sharpe ratio of the tangency portfolio. Loadings on UMO incrementally predict the cross-section of returns on both portfolios and individual stocks, even among firms not recently involved in external financing activities. Further evidence suggests that UMO loadings proxy for the common component of a stock's misvaluation. (JEL G12, G14) Several recent behavioral models predict commonality in the misvaluation of firms. In the style investing approach of Barberis and Shleifer (2003), commonality in misvaluation arises when irrational investor enthusiasm for stock characteristics shifts, inducing positive comovement among stocks with similar characteristics and negative comovement in stocks with dissimilar characteristics. In the overconfidence approach of Daniel, Hirshleifer, and Subrahmanyam (2001), investors misinterpret what they perceive to be private information The article was previously entitled "Equity Financing, Commonality in Misvaluation, and the Cross-Section of Stock Returns." We appreciate helpful comments and suggestions from

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Section: Loadings Of Assets On Umosupporting

confidence: 51%

A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns

Hirshleifer¹,

Jiang

2010

Rev. Financ. Stud.

140

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“…Based on these findings it might be stated that companies should not always assume that initiation of dividend policy can improve firm value. Other studies reporting the presence of short-term positive reaction from market to dividend initiation were performed by Taranto (2002), Kosedag and Michayluk (2000), while significant long-term positive reaction reported by Boehme and Sorescu (2002).…”

Section: Literature Review and Hypothesismentioning

confidence: 95%

The Effect of Dividend Initiation on Short-run Return in Indonesia: An Event Study with Propensity Score Matching Approach

Sugeng

2016

IJBM

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Dividend initiation policy offers a relatively unique practical and conceptual characteristics compared to those of regular dividend. This study aims at investigating whether initial dividend policy of Indonesian firms affects short-run stock return, while further exploring the implementation of a new event study approach, propensity score matching, as an experimental-like design. This approach is based on actual rather than estimated abnormal return commonly used in traditional approach. Applying this new approach, this study found no significant abnormal returns around dividend initiation announcement by firms listed in Indonesia Stock Exchange. The findings imply that the dividend initiation behavior of Indonesian firms is proved not fully to follow the theoretical framework of signaling model, a dividend model which is basically developed primarily based on regular dividend behavior. The results partly contradict those findings mostly resulted from researchs conducted in advanced market context but seem to support contextuality argument of dividend policy. From methodological perspective, this study identified that the use of propensity score matching approach needs a large number of firms from which control firms are selected, accordingly the study conducted in market with limited number of listed firms such as in Indonesia could generates selection problem of control firms that optimally match treated firms.Keywords: dividend initiation, signaling theory, propensity score matching IntroductionSignaling model is one of the main theoretical explanatory models of dividend policy under the framework of the relevance of dividend proposition. Signaling model of dividend developed by Merton Miller and Modigliani (1961), Bhattacharya (1979), John and Williams (1985), and Miller and Rock (1985, builds upon the framework of asymmetric information. This model explains that the managers as corporate insiders use dividend policy as a means to provide a signal to the investors or market about private information associated with the prospects of the firm's performance. Therefore, according to the model, dividend policy taken by manager provides indication about the prospects of the firm's performance to the market.

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“…Consistent with the work of Boehem and Sorescu (2002) and Brav and al (2005), Janice and al (2011) studied market reaction of firms making a takeover bid. Using a sample of 743 Australian firms for a period of 13 years from 1992 to 2004 (332 firms that distribute dividends and 431 firms that do not distribute dividends) and using the method of event study, the authors find a positive and statistically significant stock price reaction after 5 years from dividends' announcement date.…”

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confidence: 73%

On the Determinants of Dividends’ Information Content

Said¹

2012

JMS

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This paper examines the determinants of dividends' information content. We put an emphasis on the role of ownership structure in explaining the impact of dividends on shareholders' wealth. To this end, our study examined a sample of 136 French firms during the year 2007 to empirically validate our model. The empirical results show a negative reaction of stock prices to dividend announcement. This finding is consistent with the hypothesis of deterioration of growth opportunities. However, we have concluded that firms' characteristics significantly affect dividends' information content.

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The Long‐run Performance Following Dividend Initiations and Resumptions: Underreaction or Product of Chance?

Cited by 138 publications

References 41 publications

A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns

A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns

The Effect of Dividend Initiation on Short-run Return in Indonesia: An Event Study with Propensity Score Matching Approach

On the Determinants of Dividends’ Information Content

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