Announcing Growth-induced Dividend Cut: Good News for Shareholders?

Dividends have been subject to extensive debate amongst financial theorists in the past decades. When a company starts to generate earnings, the decision of paying dividends to shareholders or reinvesting the surplus in the business becomes crucial. Indeed, for investors, this decision conveys information about a firm’s expected future performance in order to ascertain the true value of the firm and to mitigate agency costs.

Up until now, most studies on dividend distribution have concluded that a change in dividend policy results in a reaction from market participants in the form of a change ...