A Note on the Stock Market Reaction to Dividend Announcements

C Michael Impson and Imre Karafiath

The Financial Review, 1992, vol. 27, issue 2, 259-71

Abstract: In this paper, the authors examine the stock market reaction to dividend announcements. A sample of dividend increases and decreases is partitioned by payout ratio increases and decreases. Previous research has examined the differential reaction to payout ratio increases and decreases only for dividend increases. In addition to an event study, cross-sectional regressions are estimated using the percent changes in payout ratio and dividend to explain abnormal returns. They conclude that payout ratio changes appear to be only an artifact of an earnings stream that is more variable than the dividend stream, rather than revealing any significant shifts in managerial policy. Copyright 1992 by MIT Press.

Date: 1992
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