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Journal of Finance Vol. 42 No. 4 1987

Corporate Financial Policy, Information, and Market Expectations: An Empirical Investigation of Dividends

Aharon R. Ofer1; Daniel R. Siegel2

1 Finance · 2 Ofer is from Northwestern University and Tel Aviv University. Siegel is from Northwestern University. We would like to thank Ken Eades, Larry Glosten, Milton Harris, Robert Heinkel, Robert Hodrick, Gur Huberman, Ravi Janannathan, Kose John, Robert Korajczyk, Shmuel Kandel, Bruce Lehmann, Thomas Lys,

Abstract

This paper documents a relationship between announcements of unexpected changes in financial policy and unexpected changes in performance of the firm. Using a new methodology that combines analysis of stock price movements and earnings forecast data, the authors provide evidence that analysts revise their earnings forecasts following the announcement of an unexpected dividend change by an amount positively related to the size of the unexpected dividend change. They also provide evidence that these revisions are positively related to the change in equity value surrounding the announcement. Further, they find that these revisions are consistent with rationality. Their results therefore provide direct evidence consistent with the hypothesis that unexpected dividend changes signal information about firm performance to market participants.

DOI
10.1111/j.1540-6261.1987.tb03918.x
Volume
42
Issue
4
Pages
889-911
Language
en
Sources
crossref openalex

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