What insight do market participants gain from dividend increases?

Description:

This study examines the reactions of market makers and investors to large dividend increases to identify the motives for dividend increases. Uniquely, this study simultaneously tests the signaling and agency abatement motivations as explanations of the impact of dividend increases on stock prices and bid-ask spreads. The agency abatement hypothesis argues that increased dividends constrict management's future behavior, abating the agency problem with shareholders. The signaling hypothesis asserts that dividend increases signal that managers expect higher or more stable cash flows in the future.

Mean stock price responses to dividend increase announcements during 1995 are examined over both short ( _1, 0) and long ( _1, 504) windows. Changes in bid-ask spreads are examined over a short ( _1, 0) window and an intermediate (81 day) period. This study partitions dividend increases into a sample motivated by agency abatement and a sample motivated by cash flow signaling. Further, this study examines the agency abatement and cash flow signaling explanations of relative bid-ask spread responses to announcements of dividend increases. Estimated generalized least squares models of market reactions to sampled events support the agency abatement hypothesis over the cash flow signaling hypothesis as a motive for large dividend increases as measured by Tobin's Q and changes in the distribution of cash flows.

Creator(s): Ellis, R. Barry
Creation Date: May 2000
Partner(s):
UNT Libraries
Collection(s):
UNT Theses and Dissertations
Usage:
Total Uses: 219
Past 30 days: 9
Yesterday: 1
Creator (Author):
Publisher Info:
Publisher Name: University of North Texas
Place of Publication: Denton, Texas
Date(s):
  • Creation: May 2000
  • Digitized: June 26, 2007
Description:

This study examines the reactions of market makers and investors to large dividend increases to identify the motives for dividend increases. Uniquely, this study simultaneously tests the signaling and agency abatement motivations as explanations of the impact of dividend increases on stock prices and bid-ask spreads. The agency abatement hypothesis argues that increased dividends constrict management's future behavior, abating the agency problem with shareholders. The signaling hypothesis asserts that dividend increases signal that managers expect higher or more stable cash flows in the future.

Mean stock price responses to dividend increase announcements during 1995 are examined over both short ( _1, 0) and long ( _1, 504) windows. Changes in bid-ask spreads are examined over a short ( _1, 0) window and an intermediate (81 day) period. This study partitions dividend increases into a sample motivated by agency abatement and a sample motivated by cash flow signaling. Further, this study examines the agency abatement and cash flow signaling explanations of relative bid-ask spread responses to announcements of dividend increases. Estimated generalized least squares models of market reactions to sampled events support the agency abatement hypothesis over the cash flow signaling hypothesis as a motive for large dividend increases as measured by Tobin's Q and changes in the distribution of cash flows.

Degree:
Level: Doctoral
Discipline: Finance
Language(s):
Subject(s):
Keyword(s): stock market | signaling | agency abatement
Contributor(s):
Partner:
UNT Libraries
Collection:
UNT Theses and Dissertations
Identifier:
  • OCLC: 47163434 |
  • UNTCAT: b2300393 |
  • ARK: ark:/67531/metadc2536
Resource Type: Thesis or Dissertation
Format: Text
Rights:
Access: Public
License: Copyright
Holder: Ellis, R. Barry
Statement: Copyright is held by the author, unless otherwise noted. All rights reserved.