R2 and the corporate signaling effect

Wei Hao, Udomsak Wongchoti, Martin Young and Jianguo Chen

International Review of Finance, 2021, vol. 21, issue 4, 1353-1381

Abstract: If corporate announcements provide additional signals about firms' future prospects, the degree of investors' dependency on these news should vary with the relative importance of firm‐specific information on such publicly traded firms. We show that price, volume and volatility reactions to dividend change announcements are significantly stronger for less synchronized firms (e.g., low R2 stocks). This indicates that lower R2 stocks are less informative and thus more surprises on firm‐specific news are experienced. These findings are particularly strong for dividend decrease announcements. We also show that signals about firms' earnings prospects from dividend decrease announcements are more reliable among these companies.

Date: 2021
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https://doi.org/10.1111/irfi.12331

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