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Efficient Market Tests of the Informational Content of Dividend Announcements: Critique

and Extension
Author(s): Clarence C. Y. Kwan
Source: The Journal of Financial and Quantitative Analysis, Vol. 16, No. 2 (Jun., 1981), pp.
193-206
Published by: Cambridge University Press on behalf of the University of Washington School of
Business Administration

Stable URL: http://www.jstor.org/stable/2330646 .


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JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS


Volume XVI, No. 2, June 1981

EFFICIENT

MARKET TESTS OF THE INFORMATIONAL CONTENT

OF DIVIDEND ANNOUNCEMENTS: CRITIQUE AND EXTENSION


C. Y. Kwan*

Clarence

Introduction

I.
In recent
regarding

considerable

various

studies,

Because

of the close

control

[8]

of the dispute

issue

porate

potential

quarterly

filtering

dividend

information

of information
contributed

process

based

to Watts'

on the concept

of prediction

to settle

results,

this

the standard

are

intervals.

to incor-

problem

of empirical
is

Lint?

to identify

refined

the potential
noise

and

methodology.

First,

study)

Second,

due to the inherent

substantially

announcement

(which were used

in Watts'

data.

challenge.

and dividend

Watts'

here.

models

dividend

by

on the identification

and extends

considered

and dividend

earnings

misclassification
which may have

annual

[4]

are

nontriviality

In an attempt

information.

earnings
issues

earnings

centered

has

literature

of dividends.

a formidable

represents

study evaluates

the present

and Fama-Babiak

the firm's

[13]

content

of dividend

of the firm's

proximity

Three methodological
ner

for the position

support

of contemporaneous

controversy,

of the informational

the work by Watts

the major

formed in the finance

has

controversy

evidence

the empirical

Despite

dates,

a major

years

treated
Third,

of

models,
by a
this

This paper is based on the author's


Canada.
McMaster University,
Ontario,
The author wishes to thank
of Toronto.
Ph.D. thesis
(1979) at the University
and
P. J. Halpern,
members of his thesis
committee, M. J. Gordon (Chairman),
J. E. Pesando and R. Westerfield,
W. R. Waters, for guidance and his examiners,
J. L. Callen,
The author also wishes to thank R. R. Pettit,
for suggestions.
L. D. Johnson, and a referee of this Journal for valuable
comments, and W. H.
and programming assistance.
Lo for computational
include
information
dividend
nontrivial
studies
The empirical
observing
those reported by Pettit
[3], and Aharony and Swary
[6], Charest
[10], Griffin
information was challenged
dividend
of trivial
Watts'
[13] observation
[1].
Laub's
[11].
argument was rebutted by Watts [14] as a
by Laub [7] and Pettit
semantic issue.
Watts [15] also emphasized various
deficiencies
methodological
in Pettit's
The position
studies.
of dividend
was also found by
triviality
Gonedes [5] in his joint tests of the informational
content of dividends,
earn?
income numbers.
Due to the similarities
ings, and extraordinary
in his classification
scheme for dividend
information with that of the Watts study, there is
no need to separately
evaluate
the Gonedes methodology.

193

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an aspect

study emphasizes
of dividend

information

formation,

including

Even if
riding
fied

these

Watts'

observed

using

earnings

announcement,

its

tify

this

study addresses
cation

The above

reacted

increase

favorably
This

to

(unfavorably)
the issue

raises

as

forms to iden?
The present

complication.

the implications

by exploring

and

change

of the firm's

and Fama-Babiak

an unnecessary

is

free

classi?

[1]

of a dividend

a period

(decrease).

of the Lintner

information

considerations

methodological
The sample

II.

are

results

pirical

classifi?

of different

used

in this

presented

in further

details

is

described

in Section

III.

study

in Section

discussed

are

IV.

V concludes

Section

Finally,

Em?

investigation.
A Revised

II.
A.

to the sign

the market on average


models

one over-

remains

Aharony and Swary

during

issue

of in?

sources

schemes.

in Section

this

data

there

resolved,

Recently,

according

return

empirical

the isolation

namely,

available

publicly

that,

dividend

potential

are

issues

naively

of a dividend

announcement

to whether using

other

methodology.

stock

daily

methodology,

information.

methodological

information

dividend

in Watts'

from the firm's

earnings

about

concern

ignored

of Identifying

Problems
Although

generally

for the purpose

unsuitable

announcements.
during

adequate

Regardless

the firm's

fiscal
if

ing the quarter

of the annual

in Watts'

To obtain
with a quarterly
Fama-Babiak
definition

a test

year,

during
tests

dividend
models

of the fiscal

that

information

solely

announcement,
needs
year

models

by treating

available

could

only

treat

declared

the examination

dur?
change
of mar-

the wrong time period.

of the information
What is

dividend

the dividend

Unless

quarter,

they are

changes,

with the dividend

a minor adjustment

to be made.

forms are

from quarterly

would have been made during


identification

original

became publicly

on annual

particular

Annual Models

dividend

announcement.

earnings

a more appropriate

annual

annual

based

it were associated

was declared

in their

of when the information

the information

ket reactions

for explaining

Using

Information

models

of identifying

as

in question

on the Watts Approach

Dividend

Quarterly

and Fama-Babiak

the Lintner

considered

Based

Methodology

associated

to the Lintner

and

to relax

the

required

any four consecutive

is

quarters

as one

Brown and Warner [2] have recently


examined various
issues
methodological
in measuring the impact of firm-specific
events on stock returns.
They observe
test is performed for month 0 which is not always the
that, if the hypothesis
to be detected.
true event month, the abnormal stock returns are less likely
determined event
Thus, they emphasize that it is important to have accurately
dates in measuring abnormal stock returns.
194

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in these

year

models.

the models

year,

have

of the four quarters

the following

"

AeL +- = D~ 4q,t
q,t

(1)
(Lintner)

for each

Then,

will

tive

quarterly

dend D

is

(including

earnings

earnings

ending

^ are
q*t
at quarter

the sum of the firm's


and extra

regular

in each

dividends)

Market reactions

q of year

t.

announced

quarterly
with E

contemporaneous

for quarter

q is

four consecu-

The moving annual

terms.

four quarters

The dividend
to the deviation

group according
.

all

model,

common parameters.

the sum of the firm's

four consecutive

Z , and Z ^ are the error


q,t
q,t
Although only the time series

mate AD

+ a0E
+ ? E ^ _ + Z
2 q,t^_
3 q,t-l
q,t

2, 3, 4.

models

AD?

2, 3, 4

q = 1,
the moving annual

Here,

forms:

- D . _ = a_D
1 q,t-l
<l't-l

E D
q,t

AD
q,t

fiscal

+ a-D_. 4- -, + ?^E? ^ T
+ Z
D~ +._-, = a_
1 q,t-l
o
2 q,t
q,t-l
q,t
q = 1,

(2)
(FamaBabiak)

of the firm's

actually

can be pooled

q,t

divi?
dividends

In these
to esti?

required

for estimating

the

announcement

is

of the actual

AD , from the fitted value


q,t
around the time of the announce-

can then be examined

classified

an information

into

ment in question.
B.

Noise

in Regression

A direct
observed

classification

dividend

technique,
explaining
a nonzero

of information
from the fitted

change

may bias

the results

quarterly

dividend

to the inherent

this

[11],

changes.

paper

to identify

dividend

information

the regular

dividend

declared

q, t
since

This

annualized

quarterly

description

of the annual

the firm after


potential

a dividend

problem

changes
dividend
change

of obfuscating

which is

the ability

by defining
dividend
are

the essence

of Watts'

value

which investors
announcement.

to that

as

can expect

signal

four times

on the grounds

provides

a fairly

195

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All use subject to JSTOR Terms and Conditions

for
that,

accurate

to receive

when D

imple-

model

announcement

Such a treatment

dividend

be due

of the empirical

can be justified
it

model,

can also

(2)

for

adequate

analogous

in (1) or
D
q, t
of the earnings

infrequent,

the true

of the

model is

In an approach

improves

on the sign

true with any regression

amount from the fitted

in the quarter

quarterly

dividend

As is

of the model.

randomness

mented by Pettit

value,

based

even when the empirical

of the actual

deviation

groups

avoids
is

from
the
defined

as

the moving annual

not declare

the firm does

extra

component of the firm's

gular

to a particular

according

a 95 percent

is

there

this

outside
ment is
as

C.

Isolation

the plausible

Using

that

using

irre-

within

for D
q,t
interval,

this

announcement

the announced
that

the prediction

conveys
from the

signal

probability

cases

inter-

prediction

the potential
however,

remedial

interval

prediction

percent

misclassified

all

falls

the announce?
can serve

interval

for the two information

- D
of D
q* t
q,t

are

is

information
relevant

news is

from other

sources

those

in

daily

Journal

Index

dividend

of information.

to follow

constrained

reported

in the Wall Street

one Can identify

under

attainable

empirically

corporate

the reference,

separable

the announcements

fically,

a 2.5

(WSJ) and summarized

the WSJI as

which are

If,

Therefore,

dividend

assumption
Journal

where

Information

of isolating

the Wall Street

to identify

to the sign

according

of Dividend

The goal

nouncements

only

an important

D
falls
q, t
the dividend

either

problem.

to remove potentially

categorized

(WSJI).

is

only a small

are

a filter

the actual

unable

classified.

incorrectly

a filter

groups

there

interval,

to situations

limited

measured,

be a 95 percent
that

of the noise

because

is

to construct

If

probability

or the model is

no information
announcement

model.

considers

payments.

variable

treatment for the noise problem is


3
For example, let the filter
vals.

is

or the extras

dividends

dividend

dividend

quarterly

applicability

of how the dividend

Regardless

the annualized

its

however,

dividends,

only regular

Since

dividend.

an-

More speci-

the sequential

pattern

below.

E_*_D

Nx

*_N2
time

other
news

Here

* denotes

other

news items

for examining

See,

that

at least

about

daily

for example,

five

the firm are

excess

other
news

dividend
announcement

earnings
announcement

stock

Theil

reported

returns

[12,

days have passed

trading

pp.

in the WSJI.

lies

between

points

during

which no

The period

suitable

E and N

in this

134-135]

196

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ings

announcement

of its

D labeled

with point

diagram,

earnings

on day t can be taken

[3],
as

the deviation

R ..
The conclusion
mt
can be reached by examining
section
D.

as

of its

public

earn?

availability

(2).

or the residual

for stock

u.,

RfJ from the market


Dt
information
is nontrivial
return

daily

of the cumulative

day for each

information

residual,

average

group described

in sub-

B above.

Classification
Schemes of Dividend
Models
Lintner and Fama-Babiak

dividend

deviations

scheme depends
dividend

are

changes

the market reacted

(small)

large

the expected

i.e.,

dividend

favorably

to small

dividends
associated

The empirical

versus

Yet,

increases

are

Pettit

adequacy
[10]

in the range

that

the past

with large

to announcements

strongly

changes.

to dividend

are

changes

the market reacts

and weakly

Approach

by Aharony and Swary implies

from market expectations.

on whether

changes

unexpected,

Naive

Information:

scheme adopted

classification

and that

dividends,
(small)

(1)

the firm's

that

ensures

or

to whether dividend

the behavior

the announcement

The naive
all

announcement

AD ^ via
q, t
the excess return

return

CAR, around

dividend

The requirement

for estimating

Charest

Following

its

precedes

data

as day 0.

of such a
of large

observed

that

of 10 to 25

announcement day
There is a lag of one trading day between the dividend
and the day when this dividend
news
(as recorded in Moody's Dividend Records)
date is chosen as the reference
i.e.,
appears in the WSJ. The latter
point,
announcement day.
Note also that, because
the length of
day -1 is the public
the period used in the residual
for each announcement is not fixed,
analysis
the number of stocks for the computation of the average residual
becomes fewer
announcement day in
is further from the dividend
as the day under consideration
either direction.
The statistical
of the average
significance
be tested under the assumption
that the individual

residual
excess

on each day t may


return u.
in an in?

with unknown mean


formation group is a random draw from a normal distribution
announcements
content in the dividend
and variance.
If there is informational
a nonzero average residual
and if the market is efficient,
in this population,
that the
can be expected.
The t-statistic
may be used to test the hypothesis
that it is nonzero.
an alternative
mean is zero against
hypothesis
population
announce
around the dividend
nonzero average residuals
Statistically
significant
for
evidence
ment day for various
information
groups should provide adequate
used by Lloydof dividend
The t-test
was recently
the position
nontriviality.
to financial
Davis and Canes [9] in their study of market reactions
analysts'
for stocks,
recommendations
and by Aharony and Swary in their tests of
buy/sell
if the
is not valid
information.
It must be realized
dividend
that the t-test
In the pres?
is violated.
observations
assumption of statistically
independent
ent study, since almost all dividend
announcements in the sample were reported
on different
returns u
calendar
for a given day t could
days, the excess
reasonably

be assumed

to be statistically

independent.

197

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All use subject to JSTOR Terms and Conditions

and unfavorably

percent
dividend
dence

increases

on small

based

for an empirical
Insofar

ought

nounced

dividend

problem,

models

diction

interval

should

be reduced

defined

tion

are

(2)

can be constructed

instead.

quarterly

dividend.

the relationship

between

the degree

can be examined

error

via

the CAR's

should

approach

dividend

identifying

to assess

be able

dividends
data

during

in

and

(1)

calculated

using

stock

(2),

analysis

in

price

Data

up to the quarter

Base

data

market returns

and extra

of estimating

and dividend

group,

To

were based

returns

daily

from the Financial

per

Dividend

and Moody's

under consideration.

information

Hand?
The

(NYSE).
changes

earnings

quarterly

and dividend

Exchange

were

section.

in Moody's

For the purpose

Line

for each

information

dividend

regular

1973-1977.
firm's

from the Value

and daily

base,

each

of 11 years

the residual

data

This

models

empirical

reported

on the New York Stock

the period

were collected

facilitate

stitute

to those

from the WSJI included

declared

for a period

Records

dividend.

in the previous

described

were restricted

and listed

collected

the parameters
share

according

of the actual

of dividend

market tests

methodology

in the sample

book of Common Stocks


annoucements

constructed

of the actual

is

noise

The Sample

efficient

study,

the revised

using

models

and the predic?

the deviation
of these

problem

information.

In the present
Firms included

of the noise
in these

for the subgroups


is

A pre?

any remaining

Ignoring

the usefulness

III.

performed

due to the noise

market expectations.
variable

of

of the an?

of market reaction

. The latter
to the size of (D ^ - D ,)/D
q,t
q,t
q,t
dividend
from its predicted
value as a fraction

a need

is

the degree

purpose,

The severity

evi?

as de?

more accurately.

Unfortunately,

when the dividend

considerably

there

with the deviation

to pinpoint

unable

to

If Pettit's

Then,

intended

level.

the annualized

as

problems,

and

its

correlated

at all

of dividends

market expectations

serve

adequately

not react

25 percent.

considerably.

can portray

from the anticipated


(1)

or over

distorted

to be strongly

but did

decreases,

market expectations

valid,

scheme are

the model does

as

is

model that

market reaction

dividend

than 10 percent

samples

by the naive

scribed

to all

of less

were
In?

Research

on the NYSE Composite

Index.
to the sample

According
of regular
there
sions.

dividend

were only
Empirical

the moving annual


tion

from all

changes

20 cases

dividend,

these

criteria

and extra

dividends

of regular

models

(1)

of this

selection

and

(2),

dividend

announcements.

were collected.

decreases

with the dividend

were initially

used

study,

In the sample,

including

dividend

omis-

variable

measured

by

to identify

Upon replacing

183 announcements

potential

the dividend

198

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variable

informa?
in

these

by the annualized

models

dividend

regular

It was found in this


and

(2),

performed

mation.

affected

almost

was measured.

are

those

in

model

(2)

estimates

with statistically

-a

was negative

the partial

few cases

in the negative

this

There

1(a).

declined
that,

around

sharply

although

was often

appeared

dividend

is

day.

not be as

most of the announcements

severe

shown

the CAR for this

in
group

indicates

evidence

information

the potential
noise

group as

to the announcements

Such empirical

nontrivial,

should

negative

however,

filtering,

of the inherent

because

of misclassification

group because

positive

After

the announcement

not discernible

The problem

in the sample, only


decreases
- D
of D
actually
placed
g/t
q,t
of severe misclassifica?
The evidence

on the sign

to be no market reaction

information

were

cases

seven

by

of dividend

group.

group on average.

negative

These

in the CAR for the unfiltered

reflected

was clearly

either

the model interpreted

significant,

based

the classification

parameter
as

Insofar

signs.

the fitting

because

to produce

failed

mechanism was misspecified.

the relatively

20 in total,

correct

significant

analysis.

81 announcements

in Table

historical

using

from the residual

Despite

data

and

group;

negative

were unclassified

95 in

(i)

categories:

81 in the unfiltered

and statistically

adjustment

eliminated

the following

into

announcements

Seven

here

presented

by the moving annual

was measured

variable

(ii)

group;

was how the dividend

groups

model.

the Fama-Babiak

fell

(1)
infor?

that mate-

the feature

of the analysis

the results

prior
divi?

models,
dividend

potential

was used,

of information

period

for more than two years.

in identifying

well

of

any extra

and Fama-Babiak

the Lintner

that

where the dividend

positive

of the linear

tion

Results

Therefore,

7 unclassified.

or a

Empirical

the 183 announcements

the unfiltered
(iii)

IV.

equally

involving

In the case
dividend,

consecutively

the classification

variable
only

dividends

of which of the two models

Regardless

rially

extra

study

the 11-year

during

cases

consisted

had not declared

either

under consideration,

or had not declared

dend,

by firms which,

declared

changes

to the announcement

147 cases

These

from 183 to 147.

was reduced

for the analysis

the number of eligible

dividend,

quarterly

of the model

involved.

for the unfiltered

in the sample

were dividend

increases.
Due to the noise
tity

the information

of the filtering

only

a small

the above

from individual

process

from some dividend


behind

problem,

for noise

announcements.
sample

model often

announcements.
removal,

to correctly

Nevertheless,

it was still

Unfortunately,

for the residual

failed

able

analysis.

Of the 95

199

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All use subject to JSTOR Terms and Conditions

with the help

to pick

the filtering

iden?

process
(81)

up signals
left
announcements

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in the positive
D

(negative)

outside

,'s

the 95 percent

The ability
enhanced

into

a substantial
Table

three

the CAR's

trivial

dividend

any material

in the post-announcement

drop in the CAR for the negative


110 to 48

the filter,

(34 to 16)

less

considerably

severe

were less

creases

of the two groups

useful

the filtered

negative

changes,

group.

strong

dividend

market reactions

not cause

from

was reduced

of dividend

should

in the negative

stronger
usually

sizes

be uneven.

group was

the filter

Hence,

was par?
in

to announcements

than those
involved

were reasonable

de?

in the sample,

mechanism

group.

decreases

did

process

to

the model here had a

Market reactions

group were considerably

Because

counterpart.

ticipated

of the positive

for the negative

was used

led

increases

cases

of misclassified

for non-

to a substantial
6
announcement day.
it

announcements

of dividend

were

with the model whose dividend

by any classification

classified

than that

to be higher

ticularly
tive

as

the percentage

Furthermore,
likely

than those

frequent

groups

the filter

dividend,

Since

problem.

As shown in

group size

(negative)

by the moving annual


noise

group,

In comparison

announcements.

was represented

variable

as

the filtering

group on the dividend

the positive

group;
There was

The evidence

period.

became more convincing


Although

positive

and negative

positive

were

changes

from 81 to 34.

category

was

variable.

3 unclassified.

(iii)

of the CAR for the positive

change

When using

group;

announcements.

the dividend
dividend

regular

and

for the unfiltered

information

misclassified

as

information

110 in the unfiltered

(i)

in the second

differentiated

reduce

of quarterly

negative

had the announced

dividend

dividend

quarterly

categories:

reduction

1(b),

clearly

model to identify

the annualized

34 in the unfiltered

(ii)

of these

interval.

prediction

the 147 announcements

classified

24 (9)

only

of the empirical

by using

(2),

Using

group,

for its

posi?
unan?

substantial

even on an a priori

basis.
The residual
classified

analysis

naively

CAR's

for these

tered

groups

according

two groups

shown in Table

was also

performed

to -the sign

for the two information

of quarterly

were found to closely


1(b).

This

finding

dividend

resemble

those

need not imply,

groups

changes.

The

for the fil?


however,

that

For all filtered


and unfiltered
information
according
groups classified
divi?
variable
was the annualized
models whose dividend
to empirical
quarterly
nonzero average residuals
(at the 0.01 or 0.05
dend, statistically
significant
announce?
of the correct
level)
signs were always observed around the dividend
nontriof dividend
ment day.
This evidence
strongly supported the position
the in?
due to the severe problem of misclassification,
In contrast,
viality.
the moving annual
to models involving
formation groups classified
according
nonzero average residuals
did not always have statistically
dividend
significant
around the announcement day.
(See Table 1.)
202

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dividend

as

changes

for three

analysis

percent,

between

to the percentage

change

the ability

To evaluate

the residual

Since

scheme treats

claim

and over

it

increases

the
of the

less

than 10

study.

Consis?

(i.e.,

was found to be unre?

dividend.
model in identifying

of the empirical

all

by results

in this

25 percent)

scheme can
distorts

inevitably

was supported

of the quarterly

dividend

for the two unfiltered

was performed

analysis

this

of market reaction

the degree

finding,

concerned,

of dividend

subgroups

10 and 25 percent,

tent with Pettit's

formation,

This

Clearly,

the naive

however,

unanticipated,

totally

information.

potential

is

information.

of market expectations.

description
residual

lated

information

of classifying

the purpose

serve

for identifying

not useful
of dividend

the test

as

insofar

are

models

empirical

in?

positive

- D
was reThe analysis
. < 10 percent.
subgroups according
q*t
q/t^_)/Dq/t
was measured by the annualized
to cases where the dividend variable
stricted
to

dividend.

quarterly
to warrant

(D

the CAR for the subgroup


that

ther away is
is

conveyed

tial

impact

misclassification
test

Not surprisingly,

(with 41 announcements)

(with 69 announcements).

the model here


on stock
potential

The usefulness

joint

2.

This

means that,

lies

above

the fur?

the announced

model to identify
sults.

of the residual

Results

shown in Table

deviations

small

D
the more information
from its expected value,
q/t 7
the
This evidence
indicates
that, despite
by the announcement.

problem,

a material

are

subgroups

group was too

of the negative

classification.

of larger

deviations

of smaller

noise

detailed

any meaningful

for the two positive

analysis

the size

Unfortunately,

is

able

returns.
dividend

to identify
Therefore,
information

of a model must, however,


of information.

those

announcements

on an empirical

the reliance
is

useful

in refining

be balanced

A model dependent

which have

against

test

is

the re?
the poten?

ultimately

of the model and the hypothesis.

...
as well as in the positive
Note that, in each of these two subgroups,
groups shown in Table 1, the CAR shows an upward trend in the post-announcement
In fact, the CAR in the subgroup of
market inefficiency.
suggesting
period,
This may be
in the pre-announcement
also increases
period.
larger deviations
dividend
about the unanticipated
information
of valuable
to the leakage
related
are in many
Because of the leakage,
the amounts declared
publicly
changes.
imme?
the average residuals
to investors.
cases
not surprises
Consequently,
The
around the announcement day become statistically
insignificant,
diately
movement of the CAR for the subgroup of smaller devi?
absence of any substantial
that any leaked information prior
ations
in the pre-announcement
period suggests
as that in the other
to public
announcements in this subgroup is not as valuable
in this subgroup is
of no leakage
of information
The interpretation
subgroup.
with the observation
of statistically
consistent
average residuals
significant
on and immediately following
the announcement day, but not prior to the announce?
ment day, for this subgroup.
(See Table 2.)

203

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TABLE 2
CUMULATIVE AVERAGE RESIDUALS
EQUATION (2)

[FAMA-BABIAK MODEL:

WITH ANNUALIZED QUARTERLY DIVIDENDS]

Day
-15
-14
-13
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
r(#) - The average

residual

is

significantly

nonzero

at

the 0.05

204

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(0.01)

level.

V.
In an attempt
cal

were considered

ner or Fama-Babiak

formation
of dividend
formation

in this

annual

dividend

of quarterly

the dispute

of the informational

assessment

issues

to settle

changes;

due to the inherent


information
including

paper

(which

for the same purpose


of market reaction
that,

is

changes.

models

are

Thus,

for identifying

of empirical

treats

all

as

an unnecessary

to portray

with the appropriate


potential

dividend

the question

the inherent

able

other

dividend

problem
models;

completely

to whether using

regression

this

some revised

market expectations

caveats,

these

empirical

information.

205

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study

nontriviality.

unanticipated),

Upon examining

changes,

problem,

in this

scheme of divi?

classification
as

of in?

sources

evidence

changes

in?

the isolation

(iii)

of dividend

of dividend

adequately

and

held

complication.

noise

of misclassifying

The empirical
position

Lint-

from announcements

available

publicly

of the naive

success

to announcements

notwithstanding

Babiak

noise

with the widely

considered

also

the potential

methodological

of the standard

information

(ii)

information.

earnings

three

the suitability

(i)

paper:

on the empiri?

literature

of dividends,

content

from the firm's

In view of the apparent


dend information

in the finance

model for identifying

was shown to be consistent

this

Conclusion

models
the degree

study observed
Lintner

and Fama-

of dividend
models

are

useful

REFERENCES
[1]

Dividend and Earnings


Aharony, J., and I. Swary.
"Quarterly
An Empirical
Journal
Returns:
and Stockholders'
Analysis."
Vol. 35 (March 1980),
pp. 1-12.

[2]

Brown, S. J., and J. B. Warner.


Journal of Financial
Economics,

[3]

G.
"Dividend
Stock Returns and Market Efficiency
Charest,
Information,
II."
Journal of Financial
Economics
(June/September 1978),
pp. 297-330.

[4]

"Dividend
Fama, E. F., and H. Babiak.
Policy:
Journal of the American Statistical
Association,
pp. 1132-1161.

[5]

and Capital
Mar?
External
Gonedes, N. J.
Accounting,
Signaling,
"Corporate
Items."
Evidence on Dividends,
ket Equilibrium:
Income, and Extraordinary
Vol. 16 (Spring 1978),
Journal of Accounting Research,
pp. 26-79.

[6]

Information
in the Stock
P. A.
Griffin,
"Competitive
and Analysts'
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Dividends,
Study of Earnings,
Vol. 31 (May 1976),
pp. 631-650.
M. "On the Informational
Vol. 49 (January 1976),

[7]

Laub, P.
Business,

[8]

J.
Lintner,
and Taxes."

[9]

Lloyd-Davies,
Second-hand
pp. 43-56.

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[11]

Price Performance."
"Measuring Security
Vol. 8 (September 1980),
pp. 205-258.

H.

of Econometrics.

Theil,
(1971).

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"The Information Content


Watts, R.
Vol. 46 (April 1973),
pp. 191-211.

[15]

Journal

Journal

An Empirical
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Journal

and the Publication


Vol. 51 (January

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Principles

New York:

of Dividends."

John Wiley
Journal

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"Comments on 'on the Informational
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Vol. 49 (January 1976),
pp. 81-85.

"Comment on 'the Impact


_.
A Reconciliation.'"
ments:
Journal
pp. 97-106.

of
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and Capital
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Security
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pp. 993-

"The Impact of Dividend and Earnings Announcements:


Journal of Business
pp. 86-96.
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Market:

Retained Earnings
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American Economic Review, Vol. 46 (May 1956),
pp. 97-113.
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P., and M. Canes.
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Journal of Business,

An Empirical
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Content of Dividends."
pp. 73-80.

R. R.
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Announcements,
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Journal of Finance,
1007.

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Announcements
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of Dividend
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A Recon-

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