This paper analyzes the effect of unexpected dividend changes on the values of common stock, preferred stock, and bonds. Two potential effects are identified: a wealth transfer effect and a signalling effect. Previous studies have shown that positive (negative) dividend change announcements produce positive (negative) common stock price changes. Whereas these findings have been attributed to the signalling aspect of dividends, they are also consistent with the wealth transfer hypothesis. Based on the announcement day returns of common and preferred stock and bond holders, it is demonstrated that the primary factor influencing security returns in response to dividend changes is market signalling. A wealth transfer effect is not necessarily ruled out, but if it exists it is dominated by the signalling effect.

The existence of seasonality in security rates of return has implications for both the study of market efficiency and tests involving return models. The existence of seasonal asset returns may be an indicator of market inefficiencies. In an efficient market, investor arbitrage should remove any excess seasonal return an asset receives over a comparable asset of equal risk. The presence of seasonal returns, however, does not necessitate market inefficiency. For example, an expected seasonal return may exist in an efficient market simply because of anticipated seasonal patterns embedded in its underlying determinants. Tax regulations, government monetary policy, seasonal information lags, or risk adjustments have all been advanced as determinants of seasonal movements in return. No matter what the basis for return seasonality or the extent of market efficiency, if seasonality in asset returns exists, then these returns do not follow a strict stationary process within the year. Statistical models analyzing asset returns may use this information to improve model specification. For instance, Kinney and Rozeff [16] have shown that large efficiency gains in estimating portfolio betas can be achieved using time stratified estimates which explicitly incorporate seasonality in 4 stock returns.

We investigate the value created through spinoffs over the 1965–1988 period by measuring the stock returns of spinoffs, their parent firms, and parent-spinoff combinations for periods of up to three years following the spinoffs. We find significantly positive abnormal returns for spinoffs, their parents, and the spinoff-parent combinations. Both the spinoffs and parents experience an unusually high incidence of takeovers and the abnormal performance is limited to firms involved in takeover activity. These findings suggest that spinoffs provide a low-cost method of transferring control of corporate assets to bidders who will create greater value.

Exchangeable debt is convertible into the common stock of a target firm in which the issuing firm has an ownership position. It signifies a potential change in the issuing firm's asset composition through the divestiture of the ownership stake in the target firm. We find that announcements of exchangeable debt offers are associated with insignificant abnormal returns for the shareholders of issuing firms. The target firm's share price declines, however, when an exchangeable debt offer is announced. This result is consistent with the offer's potential to reduce the ownership concentration of the target firm's common stock.