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Bandwagon effect: Special dividend payments

May Hu, Mataiasi Tuilautala and Yuni Kang

International Review of Economics & Finance, 2019, vol. 63, issue C, 339-363

Abstract: The objective of this study is to determine whether there is a bandwagon effect of special dividends in United States industries. Specifically, we investigate whether the predictions of the information-signalling hypothesis or the agency theory account for the special dividend behaviour at the industry-level. Out of a broad sample of publicly listed firms in the US market, our results show that rival firms in concentrated industries follow other firms' special dividend announcements. The intra-industry effects of special dividend events indicate positive contagion effects on a rival firm's abnormal returns. Our findings lend credence to the information-signalling hypothesis, rather than to agency theory. This is because special dividends act as signals to convey information to the market on the sustainability of growing industry-wide earnings. The propensity to follow occurs because of industry homogeneity: comparable firms aim to validate the industry signal.

Keywords: Special dividends; Industry concentration; Bandwagon effect (search for similar items in EconPapers)
JEL-codes: G14 G35 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.iref.2019.04.002

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