סמינר במימון חשבונאות
The Vanishing Stock Dividends
Avner Kalay, TAU
Abstract: The distribution of stock dividends reduces firm's legal ability to pay cash dividends, hence are costly to the stockholders. Consequently, the payment of stock dividends can act as a signaling device supporting a separating equilibrium. The empirical evidence documented, however, is inconsistent with this interpretation of stock dividends. We find a significant deterioration in the operating performance of firms following the distribution of stock dividends. We document positive and significant 5 days CARs around the announcement of distribution of stock dividends throughout the sample period (1954-2012). Yet, when ordered in a-per firm sequence, the evidence indicates dramatic decay in these announcement effects. First time payments are associated with significant positive 5 days CARs, down almost monotonically to insignificant CARs towards the end of the sequence. Investors seem to learn that stock dividends are not good news. Most importantly, the issuing firms adjust to the changing market perception. The fraction of stock dividend payers sharply decreases from 14.0% in the 1950s to merely 0.2% in the 2010s.
The paper will be available from the finance-accounting seminar website:
