SHAREHOLDER WEALTH, IFORMATION SIGNALING AND THE SPECIALLY DESIGNATED DIVIDEND

James A. BRICKLEY

University of Utah, Salt Lake City, UT84112, USA

Received June 1982, final version received October 1982

第十四組U882602 吳龍鎧U882615 陳凱文U882617 李呈穎

Introduction:

1.How does a company handle their dividend policy?

-->regular,SDDs

2.The Definition of "special designated devidends(SDDs)"?

-->"extra","special","year-end"

3.why companies choose SDD instead of increaing regularly

dividend?

-->Concept:A SDD can be viewed as a distribution of cash

to shareholders which may not convey as bright a message

as an increase in the regular dividend.

Three major question to the labeling of dividend increase:

1.Do SDDs convey information?

2.Are SDDs only temporary dividend increase or do they imply

more positive information about future dividends and

earnings?

3.Is different information conveyed by SDDs and regular

dividend increases?

Data sources and sample design:

Sample of SDDs:165 SDDs declared from 1969 to 1979 on common

stock listed on the NEW YORK and Ameriacan Stock Stock

exchange.

(a)The dividend must be reported in Moody's Annual Dividend

Record as an SDD;

(b)the SDD must be the first SDD declared by the firm in

at least a two-yeard period;

(c)the SDD must not be a resumption of a interupped

dividends,the firm must have paid a dividend the quarter

before.

(see table 1.)

Control sample of regular increases:

Pick up 100 observations from SDD, we need to choose 100

relative firm for control.

How to make a paired comparison?

-->"time" and "relative size" must be controled.

-->But fixed in time, it will be hard to fixed in relative size.

-->We tend to find both "in dollar-size" and "in relative size".

(see table 2.)

4. Common stock returns around the announcement of SDDs and regular dividend increases

4.1 market reactions to SDDs

4.2 A comparison between the size of the SDD and the size of the announcement period stock return

4.3 A comparison of common stock return surrounding SDDs and regular dividend increases

Introduction

(1) To investigate if SDDs disclose information to the market

(2) To examine the nature of this information

(3) To investigate whether SDDs and regular dividend increases convey different information

4.1

Null hypothesis: two-day announcement period average return=the mean of the non-overlapping two-day average return from the comparison period

T=5.9, and the null hypothesis can be rejected at the 0.01 level of significance

The evidence in this section of positive returns around the announcement of SDDs is consistent with hypothesis that SDDs convey positive information to the market.

4.2Percentage size:SDD / stock return

The null hypothesis: the announcement period

return = the percentage size of the SDD

T=3.65,this t-value allows us to reject this null hypothesis at the 1% level

4.3

1. The first test of differential market reaction to SDDs and regular dividend increases does not control for the si

ze of dividend increase

2.

3.

5.Dividend performance following an SDD

5.1 Descriptive overview of the dividend performance following an

SDD(table4)

5.2 Dividend payouts following SDD vs. decisions not to change the dividend (table 5)

• Anniversary quarter measure (AQM)

• Following quarter measure (FQM)

• Following year measure (FYM)

Table5 FQM AQM FYM

• Mean for SDDs 1.07 1.50 1.23• Mean for no changes 1.02 1.10 1.06• Mean difference 0.056 0.407 0.182• Sample size 90 90 90• Standard error

Of mean 0.0297 0.0869 0.0468t-value for difference of mean test 1.88e 4.68f 3.89f

e. one-tailed p-value of 0.04 f. One-tailed p-value of less than 0.01

Two possible biases

• 1 the no change firms & the SDD firms

policy 的不同• 2.(by section 6) firms tend to declare SDDs after p

eriods of good earnings performances.

☺the SDD is more than a temporary increase in the dividend.

5.3 Dividend payout following SDDs vs. regular dividend increases (table

6)

• ☺ the dividend performance following a regular dividend increase dominates that following an SDD.

Table 6 N Mean F-value P-value• (1)FQM SDD 65 1.06 45.82 0.0001 Regular dividend 40 1.40 increse

(2)AQM SDD 63 1.39 5.22 0.0250 Regular dividend 35 1.75 increse

(3)FYM SDD 63 1.20 13.84 0.0003 Regular dividend 35 1.52 increse

6.Earning performance surrounding SDDs

• 6.1 Earning changes from the fiscal year prior to announcement to the fiscal year of announcement.(table7)

N Mean %non-negative F-value

SDD 63 58% 92% 0.078

Regular 35 51% 94%

divivdend Increase

• 6.2 Earning changes from the fiscal year of announcement to the fiscal year after the announcement (table8)

• N Mean %non-negative F-valueSDD 63 -1% 66% 2.89b

Regular 35 30% 77%

Divivdend increase b p-value 0.0462

Summary

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