The Journal VOL. o f FINANCE No. 1 xxxv MARCH1980 Quarterly Dividend and Earnings Announcements and Stockholdersâ Returns: An Empirical Analysis JOSEPH AHARONY and ITZHAK SWARY* I. Introduction ASSUMING THAT MANAGERS POSSESS inside information about their firmsâ future prospects, they may use various signaling devices to convey this information to the public. Two of the most important signaling devices available are earnings and dividend figures. The âinformation content of dividendsâ hypothesis asserts that managers use cash dividend announcements to signal changes in their expectations about future prospects of the firm.â Since dividend decisions are almost solely at managementâs discretion,â announcements of dividend changes should provide less ambiguous information signals than earnings numbers. Furthermore, given the discrete nature of dividend adjustments, signals transmitted by these changes may even provide information beyond that conveyed by the corresponding earnings numbers. If dividends, then, do convey useful information, in an efficient capital market this will be reflected in stock price changes immediately following a public announcement. It is, therefore, an empirical question whether dividend information content is useful to capital market participants. A major difficulty in assessing dividend information content lies in the fact that dividend and earnings announcements often are closely
The Journal of Finance – Wiley
Published: Mar 1, 1980
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