Understanding the price reaction to large dividend increases

Ebenezer Asem

Finance Research Letters, 2023, vol. 54, issue C

Abstract: Recent studies report muted price reactions to large dividend increases, attributing the phenomenon to the fact that these events are part of volatile dividend streams and are followed by dividend cuts. I find that the price also reacts slower to large dividend increases, suggesting the price effects of these events are more uncertain than small dividend increases. Further analysis shows that large dividend increases display some persistence and this offsets the effects of subsequent dividend cuts on future dividends. These results are more consistent with the muted price reaction arising from market concerns about dividend volatility than subsequent dividend cuts.

Keywords: Muted abnormal returns; Large dividend increases; Event studies (search for similar items in EconPapers)
JEL-codes: G30 G35 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001757

DOI: 10.1016/j.frl.2023.103802

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