Dividend Decapitalization And Financial Performance Signals

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Dennis T. Officer
Roger M. Shelor

Keywords

dividend announcements, financial performance signals, decapitalization

Abstract

This study examines the stock price response to dividend announcements which include a return of capital to owners.  The continuation of an amount previously distributed exclusively from earnings is effectively a dividend reduction.  Dividend cuts have been shown to provide an unfavorable signal to investors.  Empirical results indicate that the market does not infer unfavorable subsequent financial performance signals from “decapitalization” dividends.

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