Impact of a dividend initiation wave on shareholder wealth

This article examines the short- and long-run impacts of a dividend initiation (DI) wave period on shareholders’ wealth. I test two hypotheses. First, firms initiating dividend payments during a DI wave period experience lower announcement returns than those initiating dividend payments outside a DI wave period. Second, firms initiating dividend payments inside a DI wave period underperform those initiating dividend payments outside a DI wave period in the long run. Using a sample of 688 DI announcements from the period 1977 to 2010, I find evidence supporting both hypotheses. Since a firm’s decision to initiate a dividend payment during a DI wave period can have implications on its shareholders’ wealth in both short and long runs, the results of this study can help design investment strategies.