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Corporate Financial Policy, Information, and Market Expectations: An Empirical Investigation of Dividends
Author(s) -
OFER AHARON R.,
SIEGEL DANIEL R.
Publication year - 1987
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1987.tb03918.x
Subject(s) - dividend , earnings , equity (law) , dividend policy , financial economics , economics , empirical evidence , stock price , monetary economics , stock (firearms) , stock market , corporate finance , value (mathematics) , business , accounting , finance , paleontology , philosophy , epistemology , horse , series (stratigraphy) , political science , law , biology , mechanical engineering , machine learning , computer science , engineering
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.