Journal of Financial and Quantitative Analysis Vol. 41 No. 3 2006
The Declining Information Content of Dividend Announcements and the Effects of Institutional Holdings
Abstract
We propose an explanation for the “disappearing dividend” phenomenon: a decline in the information content of dividend announcements, which reduces the propensity of firms to use dividends as a costly signal. A reason for a decline in the information content of dividends is the rise in holdings by institutional investors that are more sophisticated and informed. Indeed, we find a decline in CAR at dividend change announcements since the mid–1970s. Across firms, CAR is a decreasing function of institutional holdings. Institutional investors exploit their superior information and buy before dividend increases. In addition, dividends are less likely to rise in firms with high institutional holdings.
- DOI
- 10.1017/s0022109000002568
- Volume
- 41
- Issue
- 3
- Pages
- 637-660
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref