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Market Responses to Dividend Increases and Changes in Payout Ratios

Published online by Cambridge University Press:  06 April 2009

Arjun Divecha  and
Dale Morse
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Extract

The effect of dividends on the valuation of securities has been a controversial subject in financial research in recent years. Since Miller and Modigliani [8] demonstrated the irrelevance of dividend policy, researchers have tested and attempted to explain market price reaction to firms’ dividend decisions. Explanations of market reactions to dividend policyhave centered around information issues and tax effects. Information issues have been empirically investigated by examining market reactions to announcements of dividend changes. The effect of differential tax treatments of dividends and capital gains usually has been examined through cross-sectional regression testing the significance of dividend yield in explaining returns. Any market return study of dividends, however, should consider both the potential information effect and the tax effect.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 18 , Issue 2 , June 1983 , pp. 163 - 173
Copyright
Copyright © School of Business Administration, University of Washington 1983

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