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The effect of dividend cancellations trigger by the Covid-19 pandemic:
Evidence from Australia and New Zealand
Mei Qiua,*and Xiao-Ming Li b
a,bSchool of Economics and Finance, Massey University, Private Bag 102904, North Shore, Auckland, New Zealand
(This version: November 2020)
Abstract
This paper investigates the effect of dividend cancellation or suspension on stock returns during the Covid-19 pandemic in Australia and New Zealand. We report three interesting findings. First, significant negative abnormal returns are observed on the announcement day which are reversed for Australian but not New Zealand firms. Second, the negative market reactions are more negative for announcements of cancelling dividends already declared (cancellation) than for announcements of suspension of dividends without previously committing to a payout (suspension). Third, we observe significant post-announcement reversals of negative initial reactions from the firms in cancellation group. These results suggest that investors over-react to cancellation news but under-react to suspension news, indicating inefficiency of the two markets under our study.
a* Corresponding author:
Mei Qiu, School of Economics and Finance (Albany), Massey University, Private Bag 102904, North Shore, Auckland 0745, New Zealand. Fax: 64 9 441 8177. Ph: 64 9 414 0800 ext 43167. Email: [email protected]
b Co-author:
Xiao-Ming Li, School of Economics and Finance (Albany), Massey University, Private Bag 102904, North Shore, Auckland 0745, New Zealand. Fax: 64 9 441 8177. Ph: 64 9 414 0800 ext 43177. Email:
2 1. Introduction
Corporate decisions on cutting or omitting dividends can affect stock returns negatively due to considerations of risk aversion (Miller and Modigliani, 1961 and Dong, Robinson and Veld, 2005), clientele effect (Berkman and Koch, 2017), information content (Ross, 1977 and Bhattacharya, 1979) or agency costs. In practice, managers are reluctant to cut dividends (Brav et al., 2005), even more so to cancel dividends (DeAngelo, DeAngelo and Skinner, 1992). DeAngelo et al. (1992) claim that having negative earnings is a necessary condition for firms with established earnings and dividend records to cut or omit dividends. They study a sample of US firms with established history of positive earnings and dividend payouts and find that 79 percent of dividend reduction and 96 percent of dividend omission announcements are made by firms reporting losses.
Benartzi et al. (1997) and Nissim and Ziv (2001) provide further evidence that decisions on cutting or omitting dividend payouts are associated with declining current-year profitability or contain information about profitability in future years. DeAngelo et al. (1992) observe that 79 percent of profitable and dividend-paying firms cut dividends after reporting negative earnings while 15 percent of these firms omit dividends. Furthermore, these firms continue to realize losses in the subsequent two years. Empirical studies find that the negative information content of these announcements have the capacity to significantly reduce stock returns (Bajaj and Vijh, 1995; Amihud and Murgia, 1997; Al-Yahyaee et al., 2011). Dielman and Oppenheimer (1984) and Benesh, Keown and Pinkerton (1984) observe significant negative abnormal stock returns for firms announced omitting dividends or reducing
dividends by more than 25 percent. They report negative market reactions not only on the day of announcement, but also the day before and the day after announcement day. Aharony and Swary (1980) and Bajaj and Vijh (1990) observe significant negative abnormal returns of approximately 3 and 2 percent over a two-day and three-day window starting the day before dividend reduction announcements of US firms. Lie (2005) find, however, earnings declines of dividend-cutting firms are short-lived; claiming that market reactions to negative dividend announcements are exaggerated by overly pessimistic investors.
In this paper, we investigate the stock price effect of dividend omissions announced by Australian and New Zealand firms during the Covid-19 pandemic in the first half of 2020.
To be included in our sample, we require these firms to have paid out cash dividends in the previous year (2019) over the same financial reporting period. Our sample of study is unique in three aspects. First, the cancellation decisions in our sample are direct consequences of economic uncertainty triggered by a severe public health crisis, a phenomenon that has not seen nor studied before in the finance literature. Given the unprecedented scale of damage of Covid-19 to the global economy and the probability of another public health crisis in future, it is important to investigate the impact that certain corporate actions have on financial markets during extremely uncertain times. Second, due to the surprise nature of the outbreak of Covid-19 pandemic, most of the firms in our sample remain profitable for the current reporting period. In contrast, previous studies find most firms omitting dividends have negative earnings. In our sample, 82 percent of New Zealand firms in our sample are
profitable over the concurrent reporting period. Third and most interestingly, approximately half of the dividend omission announcements are made by firms that announced cash
dividends before announcing cancellations of dividends. This is a phenomenon not observed during other difficult times including the global financial crisis. The change-of-mind of the
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management of these firms is likely to cause more confusion and disappointment among investors than other cancellation announcements do. To find out if this is the case, we split our sample of study to two groups of events, one for the cancellation of announced dividends (Cancellation) and the other for the outright announcement of no dividend payouts
(Suspension), then investigate the stock price effect of these announcements separately following an initial analysis of the entire sample of dividend omissions.
2. Characteristics of the stock markets of Australia and New Zealand
Fatemi and Bildik (2012) observe a persistent worldwide trend of declining number of firms paying dividends. Hartzmark and Solomon (2019) present evidence that investors are overly optimistic about dividend stocks and report higher demand for dividends in low
interest rates environment. Similarly, Jiang and Sun (2019) find that investor demand for high dividend stocks becomes stronger in periods of low interest rates.Hartzmark and Solomon (2013) observe abnormal returns in the months when firms are expected to issue dividends, and report price pressure effect arising from higher investor demand for dividend-paying stocks in anticipation of upcoming dividend announcements. They observe positive abnormal returns of 3 basis points on the anticipated announcement day and 12 basis points on the announcement day.
The public firms of Australia and New Zealand are attractive to dividend investors home and abroad by providing high dividend yield among the developed markets. Over almost three decades from 1991 to 2019, the MSCI ASX and NZX stocks topped the list of 23 MSCI developed markets in terms of average annual dividend yields at 2.21 and 1.77 percent respectively; although they are moderately ranked the 10th and 12th by measure of total returns. Dividend is a more important source of income to investors of these two
markets comparing to those invested elsewhere. Historically, investors receive 48.1 and 57.4 percent of total returns in the form of dividends in Australia and New Zealand, respectively.
In comparison, other developed markets in the MSCI family generated 35.9 percent of the total returns in the form of dividend payouts.
The outbreak of Covid-19, however, hit the two economies hard after their national governments enforced lockdown rules in late March 2020, a time that coincides with a financial reporting season. The lockdowns put a brake on the economies and caused
extraordinary financial uncertainty for businesses. In anticipation of poor earnings, difficulty in obtaining financing and uncertainty about the full impact of the pandemic response, some public firms announced outright suspension of dividend payouts (Suspension), some others that have declared cash dividends announced decisions to cancel dividends (Cancellation) to preserve cash and survive the pandemic. Note these firms paid out dividends over the same financial reporting period in 2019. This is an unprecedented phenomenon not seen even during the latest global financial crisis, a period when firms responded by cutting the sizes of dividends instead of cancelling dividend payouts all together. It is worth noting that
shareholders are not disadvantaged from receiving dividend income under the tax imputation systems in Australia and New Zealand. Hence, cancellation of cash dividends does provide tax advantage to shareholders.
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3. Economic impact of Covid-19 and government reactions
The Covid-19 epidemic was declared a global emergency on January 30 and a pandemic outbreak on March 11, 2020 by the World Health Organization (WHO). In Australia, the first coronavirus infection was recorded on January 25. In response, the
Australian government published the Emergency Response Plan for Novel Coronavirus on 18 February, taking an approach to minimize the number of infections, severity of sickness and number of death due to Covid-19.1 A nationwide staged lockdown is announced shortly to close businesses, schools and shops from the 23rd of March. On 8 May, the Australian government announced a plan to get out of the lockdown in three stages aiming at reaching stage three by July.
In New Zealand, the first coronavirus infection was confirmed on the 28th of February. In response, the New Zealand government implemented an elimination strategy using a sustained approach to keep the virus out, find it and stamp it out βthrough: controlling entry at the border; disease surveillance; physical distancing and hygiene measures; testing for and tracing all potential cases; isolating cases and their close contacts; and broader public health controlsβ2. The government announced a 4-level Alert Level System on the 21st of March and went into Alert Level 2 on the same day. Four days later, the government declared State of National Emergency and increased the alert level to Level 3 and another increase to Level 4 (Lockdown) effective from the mid-night on the following day. During the
lockdown, movement of people and travel are severely limited, public venues and non- essential businesses are closed. The government provided financial support for businesses with two rounds of Wage Subsidy and for individuals with Income Relief Payment.
Note the lockdown rules in New Zealand is stricter than in Australia. Consequently, New Zealand achieved greater success in eliminating the virus, which however, came at a greater cost to the economy. The former Prime Minister and Chair of the ANZ Bank Sir John Key expressed his concern about the governmentβs strict virus elimination rules may put the country at a βrisk of terrifying itself into a Covid standstillβ3.
The damage of the covid-19 pandemic to economy is believed to be deeper and more widespread than that of a global finance crisis. According to an investment firm, the ASX firms paid out approximately 87 billion Australian dollars dividends in 2019; but the 2020 dividend payouts were expected to be 30 percent or 26 billion Australian dollars lower than the previous year due to the pandemic (Greenblat and Rogers, 2020). The Australian stock market perform strongly at the onset of the pandemic outbreak, with the ASX 200 Index reached a record high closing at 7,162 points on the 20th of February. However, the index value dropped by more than 10 percent in the following week and the total loss reached 36 percent at the trough recorded on the 23rd of March. The RBA slashes cash rate to record low of 0.5% on the 3rd of March and the Australian Government announced first round of
1 The Australian Government Department of Health (March, 2020). Australian Health Sector Emergency Response Plan for Novel Coronavirus (COVID-19) Short Form. Downloaded from www.health.gov.au.
2 The Ministry of Health of New Zealand (May, 2020). COVID-19: Elimination strategy for Aotearoa New Zealand. Downloaded from www.health.govt.nz.
3 NZ risks terrifying itself into a Covid standstill: Key
Former PM says throw the rule book out. Former Air NZ CEO says prepare for round 2 of virus.
Boni, D. D. (Aug 5, 2020). NZ risks terrifying itself into a Covid standstill: Key. National Business Review.
Downloaded from www.nbr.co.nz.
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business financial assistance of A$17.6 billion on the same day. Further government assistances were announced on March 22nd and 30th (A$66 billion and A$130 billion).
In response to the rapidly deteriorating business environment, some firms made difficult decisions to suspend dividend payouts or even cancel announced dividends. These may be rational decisions under the circumstance, supported by empirical studies including Ramelli and Wagner (2020) which find that firms holding more cash and firms with more conservative financial leverage held up values better. They argue that lower debt and more precautionary cash holdings increases the chances of survival, leading to less exposure to the Covid-19 pandemic.
Cancellation of dividends have significant implications for superannuation funds, dividend funds and retail investors who rely on dividend income to meet transaction needs or living costs. More importantly, the shrinking size of dividend payouts occurred during a period when cash is needed the most by shareholders when share prices were falling, unemployment rates were increasing, and global interest rates were sliding to historically low. As the full economic impact of the pandemic yet to be discovered, it is hard to say whether the cancellation of dividends is a one-off short-term event or a recurring
phenomenon in future reporting seasons. It is therefore important to study the stock return effect of these corporate actions the effect of this type of events, particularly the effect of cancellation of announced dividends which is a phenomenon that have not been studied before in the finance literature. In this study, we examine stock price reactions to these announcements to gain some insight into answer the following research questions:
β’ How did Australian and New Zealand shareholders fare around the announcements of dividend suspension and cancellation due to the Covid-19 pandemic?
β’ New Zealand imposed more strict lockdown rules than Australia did, resulting in New Zealand businesses been hit harder than Australian businesses. Did the New Zealand market react more strongly to than the Australian market?
β’ Are the abnormal market reactions, if any, temporary or permanent?
Our investigation reveals that firms cancelled announced dividends realized
significant negative abnormal returns prior to, on the day, and the day after the announcement day on both markets. Firms in the suspension sample realized a significant negative
cumulative abnormal return over a three-day window (-1, 1) only in Australia, not in New Zealand. For both markets, we observe significant positive cumulative abnormal returns in post-announcement windows for the cancellation sample only. We do not find post-
announcement reversals for the suspension sample. In general, both markets reacted to the Cancellation news more strongly initially, although the total cumulative abnormal return observed for the entire event window (-5,20) is less negative comparing to that of the reactions to Suspension news. Our findings suggest that investors over-reacted to the announcement of declared dividends but under-reacted to the news about dividend suspensions. Taking a medium-term perspective, public firms should not shy away from making difficult decisions about cancellation of declared dividends if this is the right course of action for surviving the pandemic.
4. Data and methodology
The construction of our sample of cancellation and suspensions of dividend payouts takes two steps. First, we searched in Factiva for news and announcements containing one of
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the following key words: cancel, cancellation, suspend, suspension, scrap, omit, defer or delay, in the Dividends category of Major News and Business Sources: Australia and New Zealand. The sample period began January 30, 2020 when WHO declared the Covid-19 epidemic a global emergency. We read and screened the news to hand-pick and create an initial list of relevant events. Next, we cross-checked the legitimacy of each event by reading the corresponding original announcement published on the websites of ASX and NZX; and recorded the date of announcement for each event. The full sample collected from each market is split into two sub-samples, one containing the announcements of outright suspension of dividend payouts (Suspension) with the other comprising of the announcements of cancellation of already declared dividends (Cancellation). For an
announcement to be included in the Suspension sample, a firm is required to have previously paid dividends in the same reporting period in 2019. The cancellation sample for NZX excludes all announcements made by New Zealand banks as these events are no surprise to the market since the Reserve Bank of New Zealand announced on 2 April 2020 banning bank dividends in an effort to βsupport the stability of the financial system during the period of economic uncertainty brought about by the COVID-19 pandemicβ. In addition, a cancellation announcement of Downer EDI Limited is excluded from our sample due to the thin trading problem with the firmβs shares resulting in no observable share price for the firm over the period of our study. In addition, we screened each event for announcements of other significant corporate events and delete any events that have contaminating events (such as mergers and acquisitions) over a four-week window starting one week before the
announcement date. Firms that have made announcements of market updates on impact of COVID-19, suspension of earnings guidance or seasoned equity offering are kept in the sample as excluding these firms would result in losing majority of the events and making the NZX sample too small to produce any reliable results.
The final sample contains 22 events for NZX announcements comprising of 10 Cancellation events and 12 Suspension events, and 30 events for ASX announcements including 15 Cancellation and 15 Suspension events. For each even in the final sample, we record the name of firm, the announcement date, the announcement type and download the daily total return index data for the firm from Datastream. In addition, we obtain daily total return index data for the ASX All Ordinaries index and the S&P/NZX All index from Datastream, covering a period from January 1, 2019 to the end of July 2020.
An event study methodology is employed to analyze the performance of sample firm stock returns over a 26-day window starting five days before the announcement day. In the first step of the study, stock return characteristics of each firm are estimated from a pre-event period using a single factor market model. Since the number of days between a dividend cancelation announcement and the corresponding dividend announcement date could be as long as 52 days, to avoid contamination effects of the previous dividend announcements, we use a 220-days estimation period starting 60 days before the announcement day:
π π,π‘ = πΌπ + π½ππ π,π‘+ ππ,π‘ (1)
where Ri,t is the rate of return of the ith firm on day t; Rm,t is the rate of return of the ASX All Ordinaries index or the S&P/NZX All index on day t; Ο΅i,t is the error term; Ξ±i and Ξ²i are the characteristics to be estimated for stock i.
Based on the estimates of Ξ±i and Ξ²i obtained from the previous step, we calculate the daily abnormal return of firm i on day t (ARi,t) then estimate the sample mean of daily abnormal returns AARt:
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π΄π π,π‘ = π π,π‘β (πΜπ+ π½Μππ π,π‘) (2) π΄π΄π π‘ =βππ=1π΄π ππ‘
π (3)
Next, the cumulative abnormal return for firm i over an event window T1 to T2
(CARi,t) and the sample mean of an event window cumulative abnormal return (ACARi,t) are calculated as:
πΆπ΄π π,π1βπ2 = βπ‘=π2π‘=π1π΄π π,π‘ (4) π΄πΆπ΄π π1βπ2 =βππ=1πΆπ΄π π,π1βπ2
π (5)
For each type of event, we calculate the average daily abnormal returns for each day the average cumulative abnormal returns for a range of different event windows over a 26- day period starting five trading days before to 20 trading days after the announcement date.
Finally, we test the statistical significance of the abnormal and cumulative abnormal returns using the standardized cross-sectional test of Boehmer, Musumeci and Poulsen (1991) corrected for serial correlation (CSect test), and the generalized sign test of Cowan (1992).
5. Discussion of results
To answer the question how Australian and New Zealand shareholders fare around the announcements of dividend suspension and cancellation due to the Covid-19 pandemic, we estimate the abnormal returns of the stocks in the full sample of ASX and NZX over the event period. Table 1 presents a summary of the main results for selected event days and event windows. Figure 1 illustrates the evolution of average daily abnormal returns (AAR in bars) and average cumulative event-window abnormal returns (ACAR on lines) over the 26- day period of study starting five days before the announcement day. An ACAR is calculated over a pre-announcement window of (-T,-1), or a post-announcement window (0,+T). The columns and the line in solid black represent the results for the ASX sample, whereas the shade columns and the dotted line represent the results for the NZX sample.
From Figure 1, we can see that both ASX and NZX markets react negatively to the news about dividend cancellation and suspension before, on and after the announcement day although the New Zealand market reacted more negatively than the Australian market.
Interestingly, the negative reactions of the ASX firms were temporary and mostly recovered in two weeks after the announcement day, while losses experienced by the NZX firms remain until the end of the event window. Turn to Table 1, the negative average abnormal returns on the announcement day are significantly negative for both samples: -3.73 percent for the ASX and -3.93 percent for the NZX sample; both are statistically significant at the 10 percent level. A significantly negative abnormal return of 3.04 percent is also observed for the NZX sample one day before the announcement day, suggesting of market speculation or leakage of information prior to the announcements. The largest ACARs are observed from a three-day window of (-1,1) at -6.87 percent for ASX and -10.90 percent for NZX samples. For the ASX sample, we find an economically and statistically significant positive ACAR of 9.85 percent over a post-event window (2,15). Over the entire 26-day event period, the ACAR is an insignificant -1.02 percent for ASX and a significant -13.07 percent for NZX with statistical
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significance. These results suggest that the NZX market reacted more negatively to dividend cancellation news than the ASX market did.
Next, we investigate whether market reactions to the Cancellation events are different from the Suspension events. For ease of discussion, we add a prefix βS-β and βC-β to the abnormal returns observed for the Suspension events and the Cancellation events,
respectively. Figure 2 illustrates the variation of daily average abnormal returns (displayed in columns) and average cumulative abnormal returns for pre-announcement windows (-T,-1) and post-announcement windows (0,+T) for ASX firms. Detailed results of abnormal returns and test statistics for selected event days and event windows are summarized in Table 2.
Detailed results for daily abnormal returns are presented in the Appendix in Table A1.
Figure 2 shows that stocks of Cancellation firms realized significant losses starting five days before until one day after the announcement day for dividend cancellation.
However, a price reversal started two days after the announcement day, which continued to increase until reaching a peak at around day 15. In comparison, stocks of Suspension firms experienced smaller negative market reactions around the announcement day, and the negative abnormal returns continued to increase until about ten days after the announcement day. These results suggest that investors were more disappointed at the news about
cancellation of declared dividends than they were at the news about outright suspension of dividends.
Refer to Panel A of Table 2, ASX firms experienced small but statistically
insignificant losses on the day and the day after the announcements of dividend suspension.
They have realized a significant negative cumulative abnormal return of -6.87 percent over a three-day window (-1,1). The negative abnormal return continued to increase after the announcement day and reached -7.61 percent in the (0,10) window which is statistically significant at the one percent level. The negative abnormal returns were partially reversed but remain significantly negative. The ACAR for the (-5,20) window is significantly negative at - 2.52 percent with a statistical significance at the ten percent level. In Panel B, ASX firms that cancelled declared dividends started to experience significant negative market reaction before the announcements were made public: a significant negative ACAR of -11.63 percent was observed for the pre-announcement window of (-5,-1). This result indicate either the cancellation decisions were leaked to the market prior to public announcements, or the decisions were anticipated by the market participants. The negative market reaction over a three-day period (-1,1) is an ACAR of -13.51 percent. However, positive market reactions started to emerge two days after the announcement day, with a statistically significant
positive +23.22 percent ACAR observed for the (2,15) post-announcement window, bring the ACAR for the (-5,20) window to 0.47 percent with no statistical significance.
Turning to Figure 3 which displays the abnormal returns observed for the NZX firms.
Similar to the findings for the ASX sample, NZX-Cancellation firms (with a prefix βC-β) experienced large negative abnormal returns from five days before until one day after the announcement day, followed by significantly positive price reversals starting two days after the announcement day. On the other hand, Suspension firms (with prefix βS-β) hardly experienced any abnormal reactions surround the announcement day after which small negative abnormal returns started to accumulate afterwards and reached a peak at 16 percent
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16 days after the announcement day. Detailed results for daily abnormal returns are presented in the Appendix in Table A1.
Table 3 presents summary statistics for the abnormal returns of NZX-Cancellation and NZX-Suspension events. From Panel A, we do not find any statistically significant daily AAR for Suspension events, although two statistically significant negative ACARs are observed for the (0,8) window at -6.15 percent and the (-5, 20) window at -13.07 percent. In Panel B, we report significant negative daily AARs for Cancellation events five days (-4.18 percent) and one day before (-7.43 percent) the announcement day, with more significant negative AARs on the announcement day (-7.56 percent) and the following day (-9.37 percent). The ACARs for a five-day pre-announcement window and a three-day window surround the announcement day (-1, 1) are -17.07 and -24.35 percent respectively; both of which are statistically significant at the one percent level. These negative market reactions are indicative of possible information leakage or investor anticipation of what is coming prior to the public announcements. Starting two days after the announcement day, the negative market reactions of these firms started to reverse with significant ACARs observed for the (2,15) window (14.69 percent) and the (2,20) window (22.11 percent), both have statistical significance at the five percent level or above. However, taking into consideration of the significant losses occurred in the pre-announcement window, on the day and the day after the announcements, the total ACAR for the (-5,20) window remains negative at -11.89 percent with a statistical significance level of ten percent. In conclusion, firms announced
Cancellation of dividends had greater price volatility but realized smaller negative cumulative abnormal returns over the entire 26-day period of study comparing to the firms announced Suspension of dividends.
6. Conclusions
This paper investigates the stock return effect of dividend cancellation and suspension announcements made by Australian and New Zealand firms due to concerns about economic uncertainty brought by Covid-19 pandemic. An initial analysis of the full samples including both cancellation and suspension of dividend announcements suggests that significant
negative abnormal returns are present on the announcement day for both Australian and New Zealand samples. We find post-announcement reversals of the negative initial reactions for Australian firms, while losses of New Zealand firms continue to increase after the
announcement day.
Further analysis of cancellation and suspension announcements in separate groups reveal that market reactions to cancellations of dividends already declared are more negative than for announcements of suspension of dividends without previously committing to a payout. This result indicates that investors are more disappointed at the managementsβ
change of mind after having previously promised dividend payouts than they are at outright decisions of no dividend payouts. Finally, we observe significant post-announcement reversals of negative initial reactions from the firms in cancellation group. These results suggest that investors over-react to cancellation news but under-react to suspension news, indicating inefficiency of the two markets under our study.
It is worth noting the sample of our study has a couple of limitations that cannot be realistically avoided. First, a small sample problem due to the fact rarity of cancellation
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events. Second, potential contamination effects since majority of the cancellation events are announced by companies relatively closely to other announcements including market updates or revisions of earning guide, while majority of the suspension announcements are released on the same day along with the firmsβ financial reports. Nevertheless, the findings of this study provide some insight into the stock return effect of dividend cancellation and
suspension decisions of the firms with an intention to preserve cash and survive the economic crisis brought by the Covid-19 pandemic.
References:
Aharony, J. and Swary, I. (1980). Quarterly dividend and earnings announcements and stockholders' returns: An empirical analysis. Journal of Finance, 35(1), 1-12.
Amihud, Y. and Murgia, M. (1997). Dividends, taxes, and signaling: Evidence from Germany. Journal of Finance, 52(1), 397-408.
Berkman, H. and Koch, P. D. (2017). DRIPs and the dividend pay date effect. Journal of Financial and Quantitative Analysis, 52(4), 1,765-1,795.
Bajaj, M. and Vijh, A. M. (1990). Dividend clienteles and the information content of dividend changes. Journal of Financial Economics, 26(2), 193-219.
Bajaj, M. and Vijh, A. M. (1995). Trading behavior and the unbiasedness of the market reaction to dividend announcements. Journal of Finance, 50(1), 255-79.
Brav, A., Graham, J. R, Harvey, C. R. and Michaely, R. (2005). Payout Policy in the 21st century. Journal of Financial Economics, 77(3), 483-527.
Cowan, A. R. (1992). Nonparametric event study tests. Review of Quantitative Finance and Accounting, 2(4), 343β358.
DeAngelo, H., DeAngelo, L. and Skinner, D. (1992). Dividends and Losses. Journal of Finance, 47(5), 1837-1863.
Dielman, T. E. and Oppenheimer, H. R.. (1984). An examination of investor behavior during periods of large dividend changes. Journal of Financial and Quantitative Analysis, 19(2), 197-216.
Dong, M., Robinson, C. and Veld, C. (2005). Why individual investors want dividends.
Journal of Corporate Finance, 12(1), 121-158.
Ekkehart, B., Musumeci, J. and Poulsen. A. B.. (1991). Event-study methodology under conditions of event-induced variance. Journal of Financial Economics, 30(2), 253β272.
Greenblat, E. and Rogers, D. (2020, May 2). Coronavirus crisis: Retail investors face $26bn dividend hit. The Australian.
Hartzmark, S. M. and Solomon, D. H. (2013). The dividend month premium. Journal of Financial Economics, 109(3), 640-60.
Hartzmark, S. M. and Solomon, D. H. (2019). The dividend disconnect. Journal of Finance, 74(5), 2,153-2,199.
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Jiang, H. and Sun, Z. (forthcoming). Reaching for dividends. Journal of Monetary Economics.
Lie, E. (2005), βOperating Performance Following Dividend Decreases and Omissionsβ, Journal of Corporate Finance, Vol. 12, pp.27β53.
Miller, M. and Modigliani, F. (1961). Dividend policy, growth and the valuation of shares.
Journal of Business, 34, 411 β 433.
Ramelli, S. and Wagner, A. F. (2020). Feverish stock price reactions to COVID-19.
Forthcoming, Review of Corporate Finance Studies. Downloaded from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3550274.
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Fig. 1. Anormal returns for the full sample including cancellation and suspension
The average daily abnormal returns (AAR) are displayed using columns. The average event-window cumulative abnormal returns (ACAR) are displayed using lines. The event day (day zero) is defined as the announcement day.
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Panel A: full sample from Australia
AAR ACAR
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Panel B: full sample from New Zealand
AAR ACAR
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Fig. 2. Abnormal returns: cancellations vs. suspensions from ASX
Average daily abnormal returns (AAR) and average event-window cumulative abnormal returns (ACAR) are displayed in columns and lines respectively. Prefix βC-β denotes the announcements of cancellation of previously declared dividends. Prefix βS-β denotes the announcements of no dividend payouts without having previously announced a payout for the reporting season.
Fig. 3. Abnormal returns: cancellations vs. suspensions from NZX
Daily average abnormal returns (AAR) and event-window average cumulative abnormal returns (ACAR) are displayed using columns and lines, respectively. Prefix βC-β denotes the announcements of cancellation of previously declared dividends. Prefix βS-β denotes the announcements of no dividend payouts without having previously announced a payout for the reporting season.
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
-5 -4 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
S-AAR C-AAR S-ACAR C-ACAR
-19.00%
-14.00%
-9.00%
-4.00%
1.00%
6.00%
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
S-AAR C-AAR S-ACAR C-ACAR
14 Table 1
Summary results β full sample including cancellation and suspension of dividends
Date AAR CSect test Sign test Window ACAR CSect test Sign test Panel A: Full sample from Australia (n = 30)
-5 -1.44 -1.364 -1.169 (-5,-1) -5.44 -1.585 -0.803
-4 -2.47 -1.532 -1.899* (-1,1) -6.87 -2.023** -1.169
-1 -1.27 -0.307 -0.438 (0,1) -5.60 -2.486** -3.774**
0 -3.73 -1.711* -2.629*** (0,4) -1.94 -3.753*** -2.643**
+1 -1.87 -0.652 -1.534 (0,15) 4.24 0.870 0.657
+5 0.98 0.662 -1.169 (2,15) 9.85 2.167** 1.023
+10 0.15 0.356 1.169 (-5,20) -1.02 -0.428 -1.169
Panel B: Full sample from New Zealand (n = 22)
-5 -1.99 -2.594*** -1.098 (-5,-1) -7.50 -2.244** -1.098
-4 -1.05 -0.574 0.182 (-1,1) -10.90 -2.889*** -1.951*
-1 -3.04 -1.794* -0.671 (0,1) -7.86 -2.446** -1.951*
0 -3.93 -1.937* -1.951* (0,4) -5.98 -1.655* -1.951**
+1 -3.93 -0.652 -1.534 (0,15) -5.99 -1.095 -0.244
+5 0.86 0.413 0.182 (2,15) 1.87 0.581 0.182
+10 -0.66 -0.787 -0.244 (-5,20) -13.07 -1.923* -0.244
Notes: Figures of average daily abnormal returns (AAR) and average event-window cumulative abnormal returns (ACAR) are expressed in percentage rate terms. Symbols *, ** and *** denote for statistical significances at the ten, five and one percent level respectively.
15 Table 2
Effect of dividend cancellation and suspension on Australian firms
Date AAR CSect test Sign test Window ACAR CSect test Sign test Panel A: Suspension announcements (n=15)
-5 0.57 -0.121 0.056 (-5,-1) 0.75 0.354 0.056
-4 -1.68 -0.851 -2.012** (-1,1) -6.87 -2.023* -1.169
-1 1.11 1.337 0.574 (0,1) -1.36 -0.574 -1.495
0 -0.26 -0.021 -1.495 (0,5) -2.68 -1.695* -2.012**
+1 -1.10 -0.825 -0.978 (0,10) -7.61 -3.018*** -2.012**
+6 -1.98 -2.127** -1.495 (2,10) -6.26 -2.405** -3.046***
+10 -0.71 -0.917 -2.012** (-5,20) -2.52 -0.432 -0.978
Panel B: Cancellation announcements (n=15)
-5 -3.44 -2.357** -1.709* (-5,-1) -11.63 -2.048** -1.193
-4 -3.26 -0.574 0.182 (-1,1) -13.51 -3.344*** -1.709*
-1 -3.66 -2.256** -1.193 (0,1) -9.85 -2.788*** -1.709*
0 -7.20 -1.879* -2.226** (0,3) -7.13 -1.268 -1.709*
+1 -2.65 -0.281 -1.193 (0,7) 0.98 0.365 -0.160
+2 1.52 0.931 0.357 (0,15) 13.37 2.488** 2.423**
+7 2.95 1.663* 0.873 (2,15) 23.22 4.450*** 2.940***
+15 1.53 1.094 -0.160 (-5,20) 0.47 0.174 -0.676
Notes: Figures for average abnormal returns (AAR) and average cumulative average abnormal returns (ACAR) are reported in percentage rate terms. Symbols *, ** and *** denote for statistical significances at the ten, five and one percent level, respectively.
16 Table 3
Effect of dividend cancellation and suspension on New Zealand firms
Date AAR CSect test Sign test Window ACAR CSect test Sign test Panel A: Suspension announcements (n=12)
-5 -0.17 -0.666 0.060 (-5,-1) 0.48 0.119 0.638
-3 -0.32 -0.870 -0.517 (-1,1) 0.32 0.029 0.060
-1 0.63 0.534 0.060 (0,1) -0.31 -0.183 0.060
0 -0.92 -0.823 0.060 (0,8) -6.15 -2.490*** -2.012**
+1 0.61 0.404 -0.517 (0,10) -3.74 -0.443 -0.517
+5 0.98 1.168 0.638 (2,15) -8.81 -1.584 -1.095
+10 -0.30 0.017 0.638 (-5,20) -13.07 -1.923** -0.244
Panel B: Cancellation announcements (n=10)
-5 -4.18 -3.005*** -1.697* (-5,-1) -17.07 -3.027*** -2.331**
-3 -3.77 -1.122 -1.063 (-1,1) -24.35 -4.420*** -2.964***
-1 -7.43 -2.211** -1.063 (0,1) -16.92 -3.030*** -2.964***
0 -7.56 -1.932* -2.331** (0,3) -11.60 -2.052** -2.331**
+1 -9.37 -2.706*** -2.331** (0,10) -10.94 -1.702* -1.697*
+2 2.58 0.332 0.205 (0,20) 5.19 0.515 0.205
+10 -1.09 -1.119 -10.63 (2,15) 14.69 2.100** 1.472
+15 1.18 1.873* 2.106** (-5,20) -11.89 -1.850* -0.429
Notes: Figures for average abnormal returns (AAR) and average cumulative average abnormal returns (ACAR) are reported in percentage rate terms. Symbols *, ** and *** denote for statistical significances at the ten, five and one percent level, respectively.
17 Appendix
Table A1
Results of average daily abnormal returns
Day Cancellation effects Suspension effects
Australia New Zealand Australia New Zealand
-5 -3.44** -4.18*** 0.57 -0.17
-4 -3.26 -2.75 -1.68 0.37
-3 -1.29 -3.77 0.50 -0.32
-2 0.02 1.06 0.25 -0.03
-1 -3.66** -7.43** 1.11 0.63
0 -7.20* -7.56* -0.26 -0.92
1 -2.65 -9.37*** -1.10 0.61
2 1.52 2.58 0.24 -0.93
3 1.20 2.74 -0.78 0.23
4 2.21 1.07 -0.48 -1.18
5 2.26 0.71 -0.30 0.98
6 0.69 1.34 -1.98** -0.99*
7 2.95 -0.37 -0.23 -0.63
8 3.65 1.05 -1.26 -0.30
9 1.63 -2.06 -0.75 -0.32
10 1.01 -1.09 -0.71 -0.30
11 0.72 2.75*** 1.19 -1.34
12 0.46 2.38* 0.37 -0.98
13 1.88 -0.53 -0.05 -0.52
14 1.49 2.92* 1.03 -1.63
15 1.53 1.18* 0.19 -1.27
16 -0.59*** -0.33 0.62 -7.52**
17 0.18 1.39 0.69 3.32
18 0.70 1.91 -0.56 -1.72
19 -0.97 2.61* 0.74 0.04
20 -0.59 1.84 0.15 -0.04
Obs. 15 10 15 12
Figures of average daily abnormal returns are expressed in percentage rate terms. Cancellation refers to the announcements of cancellation of previously declared dividends. Suspension refers to the announcements of no dividend payouts without having previously announced a payout for the reporting season. Symbols *, ** and ***
denote for statistical significances at the ten, five and one percent level respectively.
