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Does the Order Between Dividend Payment and New Stock Issuance Matter to Stock Price? — Evidence from Taiwan

Author

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  • Mia Twu

    (Department of Finance, School of Business, Chengchi University, 64, Section 2, Zhi-Nan Road, Taipei, Taiwan)

Abstract

I argue that paying dividends before issuing new stock can increase the stock price in the case when firms announce dividend payments and new stock issuance contemporaneously. It enables issuing firms to disentangle the agency problem of paying dividends by newly-raised funds from dividend information for new stock issuances. I employ the seasoned offerings of Taiwan listed firms as the sample, because of their practice of paying dividends once a year. The conditional event study strongly supports this argument and explains why previous studies fail to detect the information conveyed by dividends for new stock issuances.

Suggested Citation

  • Mia Twu, 2010. "Does the Order Between Dividend Payment and New Stock Issuance Matter to Stock Price? — Evidence from Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 363-380.
    • Handle: RePEc:wsi:rpbfmp:v:13:y:2010:i:03:n:s0219091510001986
    DOI: 10.1142/S0219091510001986
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    Cited by:

    1. Ming-Chang Cheng & Ching-Hwa Lee, 2016. "Trading Activities Around Ex-Dividend Days: Evidence from the Taiwan Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-17, March.

    More about this item

    Keywords

    Dividends; new stock issuance; agency problem; signaling; price reaction;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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