Inventory valuation, LIFO, FIFO, Inventory costing

The effect of dividends on the valuation of securities has been a controversial subject in financial research in recent years. Since Miller and Modigliani [8] demonstrated the irrelevance of dividend policy, researchers have tested and attempted to explain market price reaction to firms’ dividend decisions. Explanations of market reactions to dividend policyhave centered around information issues and tax effects. Information issues have been empirically investigated by examining market reactions to announcements of dividend changes. The effect of differential tax treatments of dividends and capital gains usually has been examined through cross-sectional regression testing the significance of dividend yield in explaining returns. Any market return study of dividends, however, should consider both the potential information effect and the tax effect.

This study examines the relationship between information announcements and bid/ask spreads. The results indicate no significant changes in bid/ask spreads surrounding quarterly earnings announcements, but significant increases in the size of bid/ask spreads are found on the day of large price changes.