FIN-02-061 |
NYU Stern School of Business |
The Declining Information Content of Dividend Announcements
and the Effect of Institutional Holdings
December 2002
Yakov Amihud and Kefei Li
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.
Yakov Amihud
Institution: Stern School of Business, New York University, 44th West 4th Street, NY 10012
Email: yamihud@stern.nyu.edu
Telephone: (212) 998-0720
Fax: (212) 995-4220
Homepage: http://www.stern.nyu.edu/~yamihud/
Kefei Li
Institution: Merrill Lynch & Co.
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