The introduction and suspension of dividend reinvestment plans : an event study

Hunter, David. (1996). The introduction and suspension of dividend reinvestment plans : an event study Honours Thesis, School of Business, The University of Queensland.

       
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Author Hunter, David.
Thesis Title The introduction and suspension of dividend reinvestment plans : an event study
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1996
Thesis type Honours Thesis
Total pages 90
Language eng
Subjects 14 Economics
Formatted abstract The thesis examined the market reaction to the announcement of a dividend reinvestment plan's (DRP) introduction and suspension. An event study methodology was employed to analyse the daily share-return behaviour of firms which introduced or suspended DRPs over the period September 1991-September 1996. It was hypothesised that the prospect of increased imputation credits, greater investment opportunities, and an implicit increase in dividends was responsible for the market reaction to a DRP's announcement. Statistically significant positive abnormal returns of up to 0.737 per cent were recorded for the announcement date of a DRP's introduction. For DRP suspensions, it was proposed that insufficient investment opportunities were responsible for the demise of a DRP and that management elude the problem of free cash flow by returning idle funds to shareholders in the form of increased dividends. Positive abnormal returns of up to 0.416 per cent were associated with the announcement of a DRP's suspension. Supplementary evidence concerning the dividend policies of the firms showed that both groups increased dividends distributed in the year of a plan's implementation or suspension. However, analysis of dividends' franking levels questions the notion that DRPs derive value from imputation credits.

 
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