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

Authors: Amihud, Yakov
Li, Kefei
Issue Date: Aug-2002
Series/Report no.: SC-AM-02-11
Abstract: We propose an explanation for the "disappearing dividend" phenomenon: the decline in the information content of dividend announcements. This reduces the propensity of firms to pay or increase dividends, since dividends are costly. The decline in the information content of dividend, is partly because of the rise in stockholding by institutional investors that are more sophisticated and informed. Our results show a decline in the stock price reaction to announcements of dividend changes since the mid 1970s. Across firms, the price reaction to dividend news is smaller in firms with high institutional holdings. Institutional investors exploit their superior information by buying before dividend increases and selling afterwards. And, firms with high institutional holdings are less likely to raise dividends.
Appears in Collections:Asset Management

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