Market reacts positively to dividend increases and negatively dividend decreases. Three
explanations are provided for this notion.
Information content (signalling) hypothesis,
Free cash flow hypothesis
Discuss these hypotheses related to dividend policy.
Briefly discuss five reasons for companies to choose repurchases rather dividends under a class
Identify (interim or final) dividend change announcement using “dividend history
DatAnalysis Premium Database” for the company allocated to you for the assignment 2.
Calculate three day return earned by your firm for the period from the day before the
announcement continuing through the day after the announcement date; and two day return
earned by your firm for the period from the day of the announcement to the day aft
Calculate the market return for the corresponding periods in (ii).
Calculate the excess: (ii)
Check the results for any other two students in your tutorial class and report that result in your
Discuss the relevant theory with the findings in (iv) and (v).
(30 + 30 + 40 = 100 marks)
A dividend change is defined as the relative difference from the previous year’s level.
Interim dividend change = interim dividend per share in year
minus interim dividend per share
Final dividend change = Final dividend per share in year
minus Final dividend per share in
Announcement date for the d
ividend change can be identified from “ASX announcements from the
DatAnalysis Premium Database”.
Announcement date for interim dividend change: use the announcement date of half yearly
Announcement date for final dividend change: use the announcement date of preliminary final
Select “ASX announcements”
select “Search option
Click here to refine your search by ASX Announcement Type
and/or text search”
for Announcement Type: select periodic reports
Announcement Type: select preliminary
final statement for final dividend; half yearly report interim dividend change specify the date range.
Miler and Modigliani has depicted into their study that a firm must not announce the entire profit as dividend. Firms are required to retain all the profits for further investment. Information content hypothesis depict that the firm’s top level management and board of directors of the firm known various private knowledge about the company which are helpful for the investors and analyst to analyse the market condition of the company. Information content of dividend is a widely accepted theory of dividend. This theory further depict that the information is confidential and that is why it is better for the firm to announce more dividend so that investors get attracted towards the company. This theory forces over the irrelevant theory of dividend.