Unformatted text preview: e next four years earnings grew on average by a further 164% 17 The Information in Dividends: Empirical Evidence Announcement of dividend cuts tend to lead to price decrease and that of dividend increase lead to an increase in the stock price. Healy and Palepu (1988): Announcement of dividends led to an abnormal increase of 4% in stock price Stock prices of companies that stopped paying dividends fell by 9.5% and earnings fell over the next four quarters The Information in Dividends 18 Qualification: It is the change in , not the level of, dividends announced that serve as an indicator of sustainability of earnings Japan: Much closer relationship between managers and owner, greater dissipation of information. The incremental information content of dividends is low. Japanese corporations are more prone to cut dividends. Investors do not mark down price as severely (Dewenter and Warther (1998)) The Information in Stock Repurchases 19 Likely to be an one‐off event The information content of...
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