Dividend reductions and signalling in an imputation environment

Balachandran, Balasingham and Krishnamurti, Chandrasekhar and Theobald, Michael and Vidanapathirana, Berty (2010) Dividend reductions and signalling in an imputation environment. In: FCGC 2010: Inaugural Finance and Corporate Governance Conference, 7-9 Apr 2010, Melbourne, Australia.

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In contrast to the double taxation system prevailing in the U.S., Australian firms operate under an imputation environment with respect to dividend payments. We argue that the dividend imputation tax system increases the signalling potential of dividend reductions and our findings support this view. We find that abnormal changes in profitability are negative in the year following dividend reductions and are negatively related to the dividend reduction. The relation is statistically significantly stronger for franked dividends. Overall, our study shows conclusively that dividend reductions in Australia constitute a strong signal regarding the future prospects of the firm and, as such, our results are at variance with the results obtained in the U.S.

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Item Type: Conference or Workshop Item (Commonwealth Reporting Category E) (Paper)
Refereed: Yes
Item Status: Live Archive
Additional Information: Copyright La Trobe University. See Program at http://www.latrobe.edu.au/__data/assets/file/0003/67305/2010-gsm-fcgc-program.pdf
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 01 Dec 2011 07:23
Last Modified: 03 Jul 2013 00:49
Uncontrolled Keywords: price reaction; Australia; dividend reductions; signalling; franked; unfranked; interim and final
Fields of Research : 15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150107 Taxation Accounting
15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
URI: http://eprints.usq.edu.au/id/eprint/19835

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