The abnormal return associated with consecutive dividend increases

Ebenezer Asem and Shamsul Alam

The European Journal of Finance, 2021, vol. 27, issue 3, 222-238

Abstract: Several studies conclude that dividend changes that are seemingly predictable on a calendar basis attract abnormal returns. We study the abnormal returns associated with consecutive dividend increases to understand this puzzle. We use regression techniques to study the relation between the number of consecutive dividend increases and the abnormal return associated with the events. Further, we study whether this relation is sensitive to firm characteristics by partitioning the regressions by the characteristics that influence the abnormal return. Our results show that the abnormal returns associated with consecutive dividend increases decline at a diminishing rate and they do not disappear, consistent with the puzzle. In addition, the decline in returns is slowest among firms that are unprofitable, small, or have high payouts. These findings suggest that the abnormal returns persist because firms that are not expected to continue a dividend-increase streak based on their characteristics do so, surprising the market and perpetuating the abnormal return.

Date: 2021
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DOI: 10.1080/1351847X.2020.1801482

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