Investment opportunities and dividend omissions

Hui Liang, Laura Moreau and Jung Chul Park

Journal of Business Research, 2011, vol. 64, issue 10, 1108-1115

Abstract: This study examines the market's reaction to dividend omission announcements and finds that if dividends are skipped to preserve cash for good investments, investors do not necessarily regard the omission as negative information. Markets penalize firms for dividend omissions only in the absence of a good stream of investments. In addition, the positive relation between investment opportunity and abnormal stock returns around the announcements is stronger when the level of information asymmetry between management and the rest of the market participants is low. Additional tests reveal that good omitters overcome underperformance faster in the post period. Overall, the results suggest that financial markets interpret differently the information conveyed in the announcement of dividend omission depending on the firm's future prospects.

Keywords: Dividend; omission; Investment; opportunities; Information; asymmetries; Signaling (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:64:y:2011:i:10:p:1108-1115

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