The informativeness of dividend announcements and the market's inefficient response to earnings.

摘要

This study examines the relations among dividend changes, earnings persistence, and the market's response to earnings news. I examine whether the market interprets changes in dividends as a signal about the persistence of past earnings changes and whether the market uses the information revealed by contemporaneous dividend announcements to improve the delayed response to earnings news.; Prior to observing the dividend signal, investors may believe that past earnings changes are partially transitory and are not necessarily indicative of future earnings levels. A change in dividend policy then alters investors' assessments about the valuation implications of past earnings. This helps explain the positive (negative) market reaction surrounding dividend increases (decreases) which has frequently been observed by researchers. The first part of my study investigates this explanation by examining the statistical relation between the market reaction to changes in dividends and past earnings changes. Empirical results confirm the hypotheses that changes in dividends cause investors to revise their expectations about the persistence of past earnings changes and that this effect varies predictably across the magnitude of the dividend change and the sign of the past earnings change.; Prior research has consistently documented that stock prices continue to move in the same direction as the initial reaction for several months following earnings announcements. This delayed response to earnings news could be due to the market's pricing of uncertainty regarding earnings news or to the ignorance of underlying earnings property. The second part of my study examines the impact of dividend announcements made concurrent with earnings announcements on the magnitude of this post-earnings-announcement drift. Evidence shows that contemporaneous dividend changes reduce information uncertainty but do not necessarily improve market efficiency. I also find that contemporaneous dividend announcements indicate different persistence levels in earnings surprises and that variations in the magnitude of post-earnings-announcement drift are associated with persistence levels. These findings suggest that information uncertainty is not a driving factor behind post-earnings-announcement drift. The market's failure to completely incorporate information conveyed by dividends leads to predictable differences in drift.