Prior studies have shown that dividend initiation announcements have information effects on the announcing firms. Also, there is evidence to suggest that firms in the same industry face similar operating conditions and production and cost structures. Hence if the initiation of cash dividend payment results from factors that affect the economic conditions of the industry as a whole, then the announcement could convey information on other firms in the industry. Also, extant literature has shown that corporate events such as dividend announcements can alter the risk of affected firms. In this paper, I provide new evidence on the information content of dividend by analyzing the effects of dividend initiation announcements on both the announcing firms and their industry counterparts. The results show that dividend initiation announcements are risk-altering events as both the announcing firms and their industry counterparts exhibit changes in risk during the dividend initiation period. The results are consistent with the argument that dividend initiation announcements convey information on other firms in the industry. The study has implications for empirical studies on dividend announcement effects. The results imply that by focusing on only announcing firms, prior dividend information-content studies have underestimated the information effects associated with this popular corporate event.

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Investment Management and Financial Innovations
Sprott School of Business

Otchere, I. (2004). Risk changes and information effects following dividend initiation announcements: Evidence based on seemingly unrelated regression method. Investment Management and Financial Innovations, 1(3), 98–117.