The Relative Announcement Effects of Ordinary Dividends, Special Dividends and Share Buybacks in New Zealand

Warwick Anderson () and Wen Kang
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Warwick Anderson: University of Canterbury, https://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This study first examines investor reactions to three types of cash disbursement announcement in the New Zealand context: increases in ordinary dividends, notification of special dividends, and the first disclosure of a share repurchase programme. Secondly it investigates whether the disbursement type is influenced by any company characteristic. Event study methodology is employed. The market model is used to create abnormal returns (ARs) on the dates of the announcements and these ARs are then subjected to T-tests and then a Kuskal-Wallis test to determine if they differ across the three announcement types. Given that dividends and earnings are announced simultaneously, a restricted least squares regression procedure is used to separate these two effects out. A multinomial logistic regression is then used to determine if any inherent company characteristic (size, leverage, liquidity risk, profitability level) influences a company’s choice of disbursement type. In the New Zealand context, investors react more dramatically to announced increases in ordinary dividends and special dividends than to announcements of share buybacks. With respect to the influence of company characteristics, share buybacks tend to be a disbursement preference for larger companies. The findings provide no support for any preference for buybacks as a substitute for dividends in the New Zealand context. This study breaks new ground in considering the relative attractiveness of the three disbursement types in New Zealand.

Keywords: Event Study; Ordinary Dividends; Special Dividends; Share Repurchases; Company Characteristics (search for similar items in EconPapers)
JEL-codes: G14 G35 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2018-01-01
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