The post-announcement performance of dividend-changing companies: The dividend-signalling hypothesis revisited

This study revisits the dividend-signalling hypothesis by examining the post-announcement performance of U.K. Companies which disclose dividend and earnings news to the capital market on the same day. For this purpose, we first analyse market-adjusted excess returns for three periods around the announcement and then examine the financial performance in the year of the announcement and in the subsequent five-year period. The near announcement excess returns and the announcement-year financial profiles provide strong evidence in support of the dividend-signalling hypothesis. However, in contrast to the predictions of the hypothesis, the longer-term results suggest that the companies which announce a reduction in both dividends and earnings (bad news companies) outperform their dividend-increasing counterparts.