Contemporary dividend and earnings announcements: Is there a corroboration effect in New Zealand?

This study examines the existence of a corroboration effect on stock returns when contemporary dividend and earnings are announced in New Zealand. Results show whether investors evaluate these two sets of information independently or in relation to each other. Using dividend and earnings data collected through the NZSE Weekly Diaries and stock price data from the University of Otago Share Price Database, there seems to be some evidence that a corroboration effect exists in New Zealand. More importantly, empirical results indicate that a corroboration effect exists only when both dividend and earnings announcements convey negative news. This suggests that either (1) managers prefer to release good news rather than bad news, or (2) investors put more weight on negative information as compared to positive information. If the latter argument is true this implies that investors may have a different pricing mechanism for positive and negative information, or that the relative content of positive and negative information is different.UnpublishedA. Eddy and B. Seifert. "Stock Price Reaction to Dividend and Earnings Announcements: Contemporaneous Versus Non contemporaneous Announcements." Journal of Financial Research 15[3] (1992), 207 – 217. A. Kane, Y. K. Lee, and A. Marcus. "Earnings and Dividend Announcements: Is There a Corroboration Effect?" Journal of Finance 39[4] (1984), 1091 – 1099, D. N. Gujarati. "Basic Econometrics." McGraw-Hill Inc. Third Edition (1995). E. Maynes and J. Rumsey. "Conducting Event Studies with Thinly Traded Stocks." Journal of Banking and Finance 17 (1993), 145 – 157. G. Charest. "Dividend Information, Stock Returns and Market Efficiency." Journal of Financial Economics 6 (1978), 297 – 330. J. Aharony and I. Swary. "Quarterly Dividend and Earnings Announcements and Stockholders' Return: An Empirical Analysis." Journal of Finance 35 (1980), 1 – 12. J. Bartholdy and A. Riding. "Thin Trading and the Estimation of Betas: The Efficacy of Alternative Techniques." Journal of Financial Research 17[2] (1994). J. Bartholdy. "Estimating Beta for New Zealand Companies." Publication (1996), University of Otago. J. C. Hull. "Options, Futures, and other Derivatives." Prentice-Hall Inc. Third Edition (1997). J. Kallunki. "Handling Missing Prices in a Thinly Traded Stock Market: Implications for the Specification of Event Study Methods." European Journal of Operational Research 103 (1997), 186 – 197. J. Lintner. "Distribution of Incomes of Corporations Among Dividends, Retained Earnings, and Taxes." American Economic Review 46[2] (1956), 97 – 113. J. M. Patell and M. A. Wolfson. "Good News, Bad News, and the Intraday Timing of Corporate Disclosures." The Accounting Review 57[3] (1982), 509 – 527. J. W. Wansley, C. F. Sirmans, J. D. Shilling and Y. Lee. "Dividend Change Announcement Effects and Earnings Volatility and Timing." Journal of Financial Research 14[1 ] (1991), 37 – 49. J. Y. Campbell, A. W. Lo and A. C. MacKinlay. "The Econometrics of Financial Markets." Princeton University Press (1997). K. John and J. Williams. "Dividends, Dilution, and Taxes: A Signalling Equilibrium." Journal of Finance 40[4] (1985), 1053 – 1070. M. C. Jensen and W.H. Meckling. "Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure." Journal of Financial Economics 3[4] (1976), 305 – 360. M. H. Miller and F. Modigliani. "Dividend Policy, Growth and the Valuation of Shares." Journal of Business 43 (1961), 411 – 433. M. Miller and K. Rock. "Dividend Policy Under Asymmetric Information." Journal of Finance 40[4] (1985), 1031 – 1051. P. C. Venkatesh. " The Impact of Dividend Initiation on the Information Content of Earnings Announcements and Returns Volatility." Journal of Business 62[2] (1989), 175 – 197. P. M. Healy and K. G. Palepu. "Earnings Information Conveyed by Dividend Initiations and Omissions." Journal of Financial Economics 21[2] (1988), 149 - 176. R. A. Brealey and S. C. Myers. "Principles of Corporate Finance." McGraw-Hill Inc. Fourth Edition (1991). R. R. Pettit. "Dividend Announcement, Security Performance, and Capital Market Efficiency." Journal of Finance 27 (1972), 993 - 1007. S. Benartzi, R. Michaely and R. Thaler. "Do Changes in Dividends Signal the Future or the Past?" Journal of Finance 52[3] (1997), 1007 - 1033. S. C. Myers. "Determinants of Corporate Borrowing." Journal of Financial Economics 5[2] (1977), 147 - 175. S. J. Brown and J. B. Warner. "Measuring Security Price Performance." Journal of Financial Economics 8 (1980), 205 - 258. S. J. Brown and J. B. Warner. "Using Daily Stock Returns." Journal of Financial Economics 14 (1985), 3 - 31. S. J. Chang and S. Chen. "Information Effects of Earnings and Dividend Announcements on Common Stock Returns: Are They Interactive?" Journal of Economics and Business 43 (1991), 179 - 192