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