The Information Content of Dividend Increases Announcements: Evidence from the French Stock Exchange

Mondher Bouattour*
*FSEG-Sfax University(Tunisio), La Rochelie Business School (France)
Periodicity:September - November'2007
DOI : https://doi.org/10.26634/jmgt.2.2.350

Abstract

This paper discusses about the information content of dividend increases announcements through the French Market. Cross-sectional regressions provide support for the signaling and free cash flow hypothesis, but only weak support for dividend clientele explanation. Cumulative abnormal returns are found to be positively related to the standardized dividend change and negatively related to firm size. These findings confirm the signaling hypothesis. Consistent with the free cash flow theory, growth opportunities and available funds influences announcement period excess returns. However, market reaction to dividend increases announcement is found to be unrelated to the dividend yield, a finding that is inconsistent with the dividend clientele explanation.

Keywords

Dividend Increases, Signaling, Free Cash Flow, Dividend Clientele

How to Cite this Article?

Mondher Bouattour (2007). The Information Content of Dividend Increase Announcements: Evidence from the French Stock Exchange. i-manager’s Journal on Management, 2(2), 34-41. https://doi.org/10.26634/jmgt.2.2.350

References

[I ]. Bajaj M. and Vijh A. (I 990), Dividend clienteies and the information content of dividend changes, Journal of Financial Economics, vol. 26, p, 1 93-219.
[2]. 8enortzi S., Michoely R. & Tholer R.H. (I 997), Do changes in dividends signal the future or the past? The Journalof Finance, vol. 52, no. 3, p. I 0071034.
[3]. 8hottochoryo S. (1979), Imperfect information, dividend policy and the bird in the hand fallacy,,, Bell Journal of Economics, I O, p. 259-270.
[4]. 8oker H.K., Mukherjee T.K. & Poskelion 0.G. (2006), How Norwegian managers view dividend policy. Global Finance Journal, vol, 17, p. 155-176.
[5]. 8orokhovich K.A., 8runorski K.R. , Hormon Y & Kehr J.8. (2005), Dividends, Corporate Monitors and Agency Costs,, . The Financial Review, vol. 40, p. 37-65.
[6]. grown S.J. & Womer J.8~ (I 985), USING DAILY STOCK RETURNS. The Case of Event Studies,,, Journal of Financial Economics, vol. 14, p. 3-3 I .
[7]. Colvi-Reveyron M. (I 999), Risque de surinvestissemenf, signalisation et annonce de dividende: le cos franais . Finance Contr6le Strategie, vol. 2, no. 3, p, I I 5- I 45.
[8]. Chou D., Liu Y. & Zontout Z. (2007), Long-term stock performance following extraordinary and special cash dividends,,, The Quarterly Review of Economics and Finance, in press.
[9]. Denis D.J., Denis D.K. & Sorin A. (I 994), The Information Content of Dividend Changes: Cash Flow Signaling, Overinvestmenf, and Dividend Ciienteles, Journal of Financial and Quantitative Analysis, vol. 29, no. 4, December, p~ 567-587,
[l0]. Deshmukh S., Fotemi A. & Foolodi I. J., (2007), Complexity of information and trading behaviour: The case of dividend increase announcements,,, Journal of Economic Psychology, in press.
[ I I ]. Dong M. , Robinson C. & Veld C. (2005), Why individual investor want dividend,,, Journal of Corporate Finance, I 2, p 121-158.
[ I 2]. Eddy A. & Seifert 8. (1988), Firm size and dividend announcements>>. The Journal of Financial Research, 4, Winter, p, 295-302.
[ I 3]. Fomo E. & French K. (I 993), Common risk factors in the returns on stocks and bonds,,, Journal of financial Economics, 33, p 3-56,
[ I 4]. Gover J.J. & Gover K.M. ( I 993), Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Accounting and Economics, vol. I 6, p. 125- 160.
[I 5]. Gugler K. & Yurtoglu B. B. (2003), Corporate governance and dividend pay-out policy in Germany, European Economic Review, 47, p 731-758,
[I 6]. Grullon G , Michaely R, Benartzi S, & Thaler R.H. (2005), Dividend Changes Do Not Signal Changes in Future Profitability. Journal of Business, vol. 78, no. 5, p. I 659- I 682,
[I 7]. Grullon, G . , Michaely R. & Swaminathan B. (2002), Are dividend changes a sign of firm maturity? Journal of Business, vol, 75, July, p. 387424.
[I 8]. Jensen M.C. (1986), Agency Costs of Free Cash Flow, Corporate Finance and Takeovers. American Economics Review, vol, 76, no. 2, p, 323-329 .
[I 9]. Jin Z. (2000), On the differential market reaction to dividend initiations, The Quarterly Review of Economics and Finance, vol. 40, p. 263-227,
[20]. John K.J & Williams J. (1985), Dividends, dilution and taxes: a signaling equilibrium. The Journal of Finance, voL 40, no, 4, p. 1053-1070.
[21]. Kato H.K., Loewenstein U. & Tsay W (2002), Dividend policy, cash flow, and investment in Japan. Pacific-Basin Finance Journal, voL 10, p, 443-473.
[22]. Lang L.H.R & Litzenberger R.H (I 989), Dividend announcements, cash flow signalling vs, free cash flow hypothesis, Journal of Financial Economics, vol. 24, p. I 81- I 91 .
[23]. Lehn K. & Poulsen A. (1989), Free Cash Flow and Stockholder Gains in Going Private Transactions. The Journal of Finance, VOL 44, p. 771-787.
[24]. Lintner J. (1956), Distribution of incomes of corporations among dividends, retained earnings and taxes,,, American Economic Review, 46, p. 97- I I 3.
[25]. Miller M.H & Rock K. (1985), Dividend Policy under Asymmetric Information . The Journal of Finance, vol, 40, no, 4, p. 1031-1052.
[26]. Nissim D. & Ziv A. (2001), Dividend changes and future profitability. Journal of Finance, vol. 56, no. 6, p. 21 I 12133.
[27]. Ryan RA., Besley S. & Lee H.W. (2000), An empirical analysis of reactions to dividend policy changes for NASDAQ firms. Journal of Financial and Strategic Decisions, vol. I 3, no, 1, p. 35-44.
[28]. Starks L. & Yoon R (2004), The Change in the Information Content of Dividend Announcements: Abnormal Returns and Operating Performance. Www.fma.org.
[29]. Yoon RS. & Starks L.T. (1995), Signaling, Investment Opportunities, and Dividend Announcements. The Reviewof Financial Studies, VOL 8, no 4, p. 995-1018.
If you have access to this article please login to view the article or kindly login to purchase the article

Purchase Instant Access

Single Article

North Americas,UK,
Middle East,Europe
India Rest of world
USD EUR INR USD-ROW
Pdf 35 35 200 20
Online 35 35 200 15
Pdf & Online 35 35 400 25

Options for accessing this content:
  • If you would like institutional access to this content, please recommend the title to your librarian.
    Library Recommendation Form
  • If you already have i-manager's user account: Login above and proceed to purchase the article.
  • New Users: Please register, then proceed to purchase the article.