The Interactive Effect between Earnings and Dividend Announcements: Complement or Substitute?

Chih-Jen Huang
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Chih-Jen Huang: Department of Finance, Providence University, Taiwan

Journal of Economics and Management, 2008, vol. 4, issue 2, 163-180

Abstract: This paper investigates the relative strengths of complementary and substitution effects between earnings and dividend announcements on a sequential sample of announcements of earnings and dividends from U.S. firms. The empirical results support the complementary hypothesis for earnings announcements that precede dividend announcements. Specifically, when evaluating an unexpected dividend signal, the investors tend to consult prior earnings information and react positively. Further tests find this complementary correlation to be stronger when accompanying negative, unexpected dividend signals. In contrast, I do not find complementary or substitution effects between dividend announcements that precede earnings announcements. In addition, the evidence indicates significant information content for unexpected revenue after controlling for unexpected earnings and dividends.

Keywords: earnings; dividends; complementary effect; revenue (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:jec:journl:v:4:y:2008:i:2:p:163-180

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