This paper examines common stock returns and dividend and earnings patterns surrounding specially designated dividends labeled by management as ‘extra’, ‘special’ or ‘year-end’ and compares them to those surrounding regular (unlabeled) dividend increases. The results support the notion that management uses the labeling of dividend increases to convey information to the market about the future potential of the firm. Unlabeled increases appear to contain the most positive information. Contrary to the sometimes suggested view, specially designated dividends appear to convey positive information about future dividends and earnings beyond that relating to the current period.

Randolph A. Shockley, Robert N. Holt, A Behavioral Investigation of Supplier Differentiation in the Market for Audit Services, Journal of Accounting Research, Vol. 21, No. 2 (Autumn, 1983), pp. 545-564

Communication, Agency model, Contracting, Communication

Financial ratios, Price-Earnings Ratio, Earnings capitalization, Uncertainty

We study a rational expectations partial equilibrium model of a market for a single storable commodity whose output each period is a function of previous period effort on production and a realization of a shock that affects equally all producers. The final demand is non-random and depends only on each period's price. Risk-neutral producers make production and storage decisions based on forecasts of future price distributions. Existence of equilibrium is proved, and for the case of i.i.d. shocks several comparative statics results are established as well as the existence and stability of a unique stationary distribution.

The specification of a statistical distribution which accurately models the behavior of stock returns continues to be a salient issue in financial economics. With the introduction of arithmetic and geometric Brownian motion models, much attention has recently focused on a Poisson mixture of distributions as an appropriate specification of stock returns. For example, see [12], [3], [8], [10], [5], and [1]. Consistent with empirical evidence, these models yield leptokurtic security return distributions and, furthermore, the specification has much economic intuition. In particular, one may always decompose the total change in stock price into “normal” and “abnormal” components. The “normal” change may be due to variation in capitalization rates, a temporary imbalance between supply and demand, or the receipt of any other information which causes marginal price changes. This component is modelled as a lognormal diffusion process. The “abnormal” change is due to the receipt of any information which causes a more than marginal change in the price of the stock and is usually modeled as a Poisson process.

Pamela P. Peterson, Gary A. Benesh, A Reexamination of the Empirical Relationship Between Investment and Financing Decisions, The Journal of Financial and Quantitative Analysis, Vol. 18, No. 4 (Dec., 1983), pp. 439-453