DIVIDEND POLICY AND STOCK ACQUISITION ANNOUNCEMENT RETURNS: A TEST OF ASYMMETRIC INFORMATION THEORY

Aymen Turki

Journal of Financial Research, 2019, vol. 42, issue 1, 115-145

Abstract: This study examines 711 U.S. stock‐based acquisitions announced between 1985 and 2013 to analyze the relation between the acquirer's dividend policy and its stock returns when the acquisition is announced. Asymmetric information theory suggests that the lower the level of uncertainty about the acquirer's value, the smaller the acquirer's price drop when a stock‐based acquisition is announced. In support of this theoretical prediction, the current study identifies less negative acquirer stock returns around the announcement of stock acquisitions initiated by dividend‐paying firms compared with those initiated by non‐dividend‐paying firms.

Date: 2019
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