The Effect of Dividend Changes on Stock and Bond Prices

This study examines stock and bond price reactions to dividend changes. The positive stock market response to dividend increases has several potential explanations, two of the more commonly discussed being information content and wealth redistribution between stockholders and bondholders. The eviden...

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Bibliographic Details
Published in:The Journal of finance (New York) 1994-03, Vol.49 (1), p.281-289
Main Authors: DHILLON, UPINDER S., JOHNSON, HERB
Format: Article
Language:English
Subjects:
Bond management
Bond markets
Bonds
Dividends
Economic models
Effects
Financial bonds
Hypotheses
Income redistribution
Information content
Investment returns
Shorter Papers
Statistical analysis
Stock dividends
Stock exchanges
Stock prices
Stock returns
Studies
Treasury bonds
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Summary:This study examines stock and bond price reactions to dividend changes. The positive stock market response to dividend increases has several potential explanations, two of the more commonly discussed being information content and wealth redistribution between stockholders and bondholders. The evidence presented supports the wealth redistribution hypothesis but does not rule out the information content hypothesis. Typically we find that the bond price reaction to announcements of large dividend changes is opposite to the stock price reaction. Our results differ from those of Handjinicolaou and Kalay.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.1994.tb04430.x