Communicating Private Information to the Equity Market before a Dividend Cut: An Empirical Analysis

CFA Digest ◽  
2015 ◽  
Vol 45 (10) ◽  
Author(s):  
Marc L. Ross
Keyword(s):  
Empirical Analysis ◽  
Private Information ◽  
Equity Market

Communicating Private Information to the Equity Market Before a Dividend Cut: An Empirical Analysis

2014 ◽  
Vol 49 (5-6) ◽  
pp. 1167-1199 ◽  
Author(s):  
Thomas J. Chemmanur ◽  
Xuan Tian
Keyword(s):  
Empirical Analysis ◽  
Private Information ◽  
Stock Return ◽  
Equity Market ◽  
Return Volatility ◽  
Reduction Theory ◽  
Data Set ◽  
Stock Return Volatility ◽  
Empirical Results ◽  
Alternative Theories

AbstractThis paper presents the first empirical analysis of the choice of firms regarding whether to release private information (“prepare the market”) in advance of a possible dividend cut and the consequences of such market preparation. We use a hand-collected data set of dividend cutting firms, which allows us to distinguish between prepared and nonprepared dividend cutters and to test the implications of two alternative theories: the “signaling through market preparation” theory and the “stock return volatility reduction” theory. We document several important differences between prepared and nonprepared dividend cutters. Overall, our empirical results are consistent with the signaling theory.

scholarly journals Active vs. Passive Funds—An Empirical Analysis of the German Equity Market

2019 ◽  
Vol 08 (02) ◽  
pp. 73-91 ◽  
Author(s):  
Ernst J. Fahling ◽  
Elmar Steurer ◽  
Sven Sauer
Keyword(s):  
Empirical Analysis ◽  
Equity Market

“Preparing” the Equity Market for Adverse Corporate Events: A Theoretical Analysis of Firms Cutting Dividends

2012 ◽  
Vol 47 (5) ◽  
pp. 933-972 ◽  
Author(s):  
Thomas J. Chemmanur ◽  
Xuan Tian
Keyword(s):  
Theoretical Analysis ◽  
Private Information ◽  
Net Present Value ◽  
Equity Market ◽  
Present Value ◽  
Financial Difficulties ◽  
Growth Opportunity ◽  
Growth Prospects ◽  
Dividend Cuts

AbstractThis paper presents the first theoretical analysis of the choice of firms between “preparing” and not preparing the equity market in advance of a possible dividend cut. In our model, insiders have private information about their firm’s intermediate cash flow as well as about the net present value of its growth opportunity. We show that, in equilibrium, firms in temporary financial difficulties but with good long-term growth prospects are more likely to prepare the market in advance of dividend cuts, while those with permanently declining earnings are less likely to prepare the market. Our model generates several new testable predictions.

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