A Test of the Relative Pricing Effects of Dividends and Earnings: Evidence from Simultaneous Announcements in Japan


  • Robert M. Conroy,

  • Kenneth M. Eades,

  • Robert S. Harris

    Search for more papers by this author
    • Darden Graduate School of Business, University of Virginia. We thank Citibank for support provided by its Global Scholars program, the Darden Foundation and TVA for financial support, and Morgan Stanley for supplying data. We also thank Sarah Garwood and Shinobu Suzuki for research assistance. Earlier versions of this paper were presented at the Office of Economic Analysis at the Securities and Exchange Commission, the 1998 FMA European meetings, and the University of Otago. We appreciate the comments of the participants at these presentations.


We study the pricing effects of dividend and earnings announcements by taking advantage of the unique setting in Japan where managers simultaneously announce the current year's dividends and earnings as well as forecasts of next year's dividends and earnings. Defining surprises as deviations from analysts' forecasts, we find that share price reactions are significantly affected by earnings surprises, especially management forecasts of next year's earnings. The information content of dividends is marginal and is restricted to announcements of next year's dividends. Consistent with Modigliani and Miller's dividend irrelevance proposition, current dividend surprises have no material impact on stock prices in Japan.