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Information Environment of ADR Firms and the Informativeness of Dividend Changes for Future Earnings
Jian Cao, Florida Atlantic University
Feng Chen, University Of Toronto
ABSTRACT. For a sample of 1,323 dividend events of ADR firms from 1984 to 2003, we observe a kink in the distribution of dividend changes from year to year. More ADR firms raise dividends, and dividend increases occur with greater magnitude than dividend decreases, compared to patterns of dividend changes in the U.S. We find that ADR dividend changes covey little information regarding future earnings. Dividends are, however, more informative for firms with poor information environment, proxied by analyst coverage, forecast accuracy, institutional ownership, and country-level corporate transparency factors. We find that these proxies of information environment significantly affect managerial incentives to use dividends to signal future earnings prospects.
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