Dividend initiations and long-run IPO performance

Janice CY How, Kian Ngo and Peter Verhoeven

Australian Journal of Management, 2011, vol. 36, issue 2, 267-286

Abstract: Dividend initiations are an economically significant event that has important implications for a firm’s future financial capacity. Given the market’s expectation of a consistent payout, managers of IPO firms must approach the initial dividend decision cautiously. We compare the long-run performance of IPO firms that initiated a dividend with that of similarly matched non-payers, and find robust results that firms which initiated a dividend perform significantly better up to five years after the initiation date. Further tests show that the post-initiation firm performance is explained mostly by dividend theory of signalling rather than free cash flow.

Keywords: Dividend initiation; free cash flows; IPOs; long-run performance; signaling (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:36:y:2011:i:2:p:267-286

DOI: 10.1177/0312896211405569

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