Revisiting corporate dividends and seasoned equity issues

Revisiting corporate dividends and seasoned equity issues Information signaling is regarded as an important motivating factor in corporate payout decisions, particularly with regard to cash dividends and the costly information signaling which they provide. Although Loderer and Mauer (1992) find little evidence to suggest that the announcements of firms’ equity offers are timed to arrive just after dividend declarations as a means of supporting the offer price. Using updated data, we determine that the dividend declaration does have a positive effect on the market reaction to equity offering announcements. We find that the abnormal returns from the announcement of seasoned equity offerings (SEOs) were −1.45 per cent for those SEO firms which had already made dividend declarations, whereas the returns for those SEO firms where the equity issue did not immediately follow a dividend declaration were −1.83 per cent. In this study, we interpret the changes in the impact of the dividend declaration on the equity offering announcement using the ‘tax regulation hypothesis’ and the ‘information asymmetry hypothesis’, and find that while our empirical results provide strong support for the latter, they provide only weak support for the former. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Revisiting corporate dividends and seasoned equity issues

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0221-0
Publisher site
See Article on Publisher Site

Abstract

Information signaling is regarded as an important motivating factor in corporate payout decisions, particularly with regard to cash dividends and the costly information signaling which they provide. Although Loderer and Mauer (1992) find little evidence to suggest that the announcements of firms’ equity offers are timed to arrive just after dividend declarations as a means of supporting the offer price. Using updated data, we determine that the dividend declaration does have a positive effect on the market reaction to equity offering announcements. We find that the abnormal returns from the announcement of seasoned equity offerings (SEOs) were −1.45 per cent for those SEO firms which had already made dividend declarations, whereas the returns for those SEO firms where the equity issue did not immediately follow a dividend declaration were −1.83 per cent. In this study, we interpret the changes in the impact of the dividend declaration on the equity offering announcement using the ‘tax regulation hypothesis’ and the ‘information asymmetry hypothesis’, and find that while our empirical results provide strong support for the latter, they provide only weak support for the former.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Dec 5, 2010

References

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