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Indiana University Bloomington

Doctoral Programs

1960 Notable

From 1960-2013, we prepared nearly 1,200 men and women
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Journal Articles

Communicating Private Information to the Equity Market before a Dividend Cut: An Empirical Analysis

2013, forthcoming Journal of Financial and Quantitative Analysis

Thomas Chemmanur, Xuan Tian

Abstract

This paper presents the first empirical analysis of the choice of firms regarding whether or not to release private information (“prepare the market”) in advance of a possible dividend cut, and the consequences of such market preparation. We use a hand-collected data set of dividend cutting firms that allows us to distinguish between prepared and non-prepared dividend cutters and test the implications of two alternative theories: the “signaling through market preparation” theory and the “stock return volatility reduction” theory. We document several important differences between prepared and non-prepared dividend cutters. Overall, our empirical results are consistent with the signaling theory.

Citation

Chemmanur, Thomas, and Xuan Tian (2013), "Communicating Private Information to the Equity Market before a Dividend Cut: An Empirical Analysis," Journal of Financial and Quantitative Analysis, forthcoming.

Keywords

market preparation, dividend cut, announcement returns, stock return volatility