The Information Content of Dividend Initiations: Additional Evidence

Edward A. Dyl is the Christopher Sheafe/Estes Homes Professor of Finance at the University ofArizona. Robert A. Weigand is an Assistant Professor of Finance at the University of Colorado at Colorado Springs. We hypothesize that the initiation of cash dividends indicates that a firm's earnings and cash flows have become fundamentally less risky. We present evidence to support this hypothesis. A sample of firms initiating dividends displays a precipitous decrease in risk immediately following the dividend announcement. Although these firms' earnings do not subsequently increase, earnings volatility is significantly lower following the dividend decision. We also find that the decrease in risk is related to the excess return observed around the dividend announcement.