reaction of bank holding company stock prices
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Abstract:
Previous research has found that bank holding company (BHC) stocks experience more severe price declines around the announcement dates of dividend cuts or omissions than do stocks of other corporations. A study examines price behavior around the announcements of 74 separate dividend cuts and omissions by BHCs, partitioned into two time periods. The first time period, 1974-1977, is a period of initial cuts and omissions by BHCs. The latter period, 1978-1987, is a period in which the market had considerable experience with dividend reductions by BHCs. Using a market-and-risk adjusted excess returns approach, it was found that while the market reaction to BHC dividend cuts in the first period is greater than that for nonfinancial corporations, there is little difference in market reaction in the subsequent time period. The use of a cross-section regression approach found that prior to 1978, the announcement effect was related to previous earnings announcements and the amount of subordinate debtin the firm's capital structure. Post-1978, excess returns are related to the magnitude of the dividend cut, the firm's equity cushion, the amount of the subordinate debt and whether or not a stock dividend was announced contemporaneously.
Full Text:
Previous research has found that bank holding company (BHC) stocks experience more severe price declines around the announcement dates of dividend cuts or omissions than do stocks of other corporations. This paper examines price behavior around the announcements of 74 separate dividend cuts and omissions by BHCs, partitioned into two time periods. The first time period, 1974-1977, is a period of initial cuts and omissions by BHCs...