Date of this Version
Journal of Financial Economics
We hypothesize that firms choose dividend increases to distribute relatively permanent cash-flow shocks and repurchases to distribute more transient shocks. As predicted, we find that post-shock cash flows of dividend increasing firms exhibit less reversion to pre-shock levels compared with repurchasing firms. We also examine whether the stock market uses the announcement of the payout method to update its beliefs about the permanence of cash-flow shocks. Controlling for payout size and the market's expectation about the permanence of the cash-flow shock, the stock price reaction to dividend increases is more positive than the reaction to repurchases.
© 2000. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0
payout policy, stock repurchase, buy-back, payout choice, dividend signaling
Guay, W. R., & Harford, J. (2000). The Cash-Flow Permanence and Information Content of Dividend Increases Versus Repurchases. Journal of Financial Economics, 57 (3), 385-415. http://dx.doi.org/10.1016/S0304-405X(00)00062-3
Date Posted: 27 November 2017
This document has been peer reviewed.