Information concent of dividend increase and share buyback

Abstract

This study investigates the effect of changes in corporate payout policy on stock pricesto explore their information content. We nd that positive abnormal returns after dividend increaseannouncements are consistent with the market timing hypothesis and ones after share buybackannouncements are consistent with both the signaling hypothesis and the free cash ow hypothesis.Furthermore, both analyst recommendations and the tone of news articles on announcing rmsare also consistent with these hypotheses. Our results suggest that post-announcement abnormalreturns are attributable to market frictions, namely information asymmetry and agency problems between managers and investors.