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The Declining Information Content of Dividend Announcements and the Effects of Institutional Holdings

Authors: Amihud, Yakov
Li, Kefei
Issue Date: May-2005
Series/Report no.: FIN-02-061
Abstract: We propose an explanation for the “disappearing dividend” phenomenon: a decline in the information content of dividend announcements, which reduces the propensity of firms to use dividends as a costly signal. A reason for a decline in the information content of dividends is the rise in holdings by institutional investors that are more sophisticated and informed. We indeed find a decline in CAR at dividend change announcements since the mid 1970s. Across firms, CAR is a decreasing function of institutional holdings. Institutional investors exploit their superior information and buy before dividend increases. And, dividends are less likely to rise in firms with high institutional holdings.
Appears in Collections:Finance Working Papers

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