The Influence of Company Financial Performance on the Interpretation of Dividend and Earnings Signals : A Study of Accounting- and Market-Based Data

Numerous studies conducted in different countries have documented evidence that the announcements of changes in dividends and earnings convey specific information to the capital market. However, recent studies which have examined simultaneous announcements by firms have discovered that the signals of dividends and earnings may interact with one another; one announcement may either corroborate or contradict the other and, in consequence, influence the level of any abnormal share returns which are earned by investors (see Kane, Lee amp; Marcus, 1984; Easton, 1991; Eddy amp; Seifert, 1992). This problem is of special relevance to the UK where the announcement of dividends and earnings news on the same day is common practice. This simultaneous release of a variety of different combinations of dividend and earnings signals may make it more difficult for investors to decode complex messages contained in mixed signals and also make it harder for them to decipher relevance information conveyed by the individual components of combined signals