R2 and the corporate signaling effect. (18th September 2020)

• Record Type: Journal Article
• Authors: Hao, Wei; Wongchoti, Udomsak; Young, Martin; Chen, Jianguo
• Is Part Of: International review of finance. Volume 21:Number 4(2021)
• Page Start: 1353
• Page End: 1381
• Publication Date: 2020-09-18
• Subjects: dividend signaling effect -- price synchronicity -- R2; Finance -- Periodicals; Financial institutions -- Periodicals; 332.673
• DOI: 10.1111/irfi.12331
• Languages: English
• ISSNs: 1369-412X

Abstract

Abstract: If corporate announcements provide additional signals about firms' future prospects, the degree of investors' dependency on these news should vary with the relative importance of firm‐specific information on such publicly traded firms. We show that price, volume and volatility reactions to dividend change announcements are significantly stronger for less synchronized firms (e.g., low R 2 stocks). This indicates that lower R 2 stocks are less informative and thus more surprises on firm‐specific news are experienced. These findings are particularly strong for dividend decrease announcements. We also show that signals about firms' earnings prospects from dividend decrease announcements are more reliable among these companies.