Analysis of price reactions to interim dividend reductions — a note

Price reactions to interim dividend reductions are empirically analysed. Initial interim dividend reductions lead to a more strongly negative price reaction than for interim dividend reductions following an earlier final dividend reduction. When the subsequent interim dividend reduction is reduced proportionately more than the preceding final dividend reduction, the price reaction is stronger than when the proportionate reduction is less. The magnitude of price reactions to interim dividend reductions is found to be statistically significantly related to the size of the dividend reduction, the gearing ratio, the industrial classification, the incidence of a prior dividend cut and the actual change in interim earnings.