HOW INVESTORS INTERPRET CHANGES IN CORPORATE FINANCIAL POLICY

Authors

  • Paul M. Healy,

    1. Associate Professor of Management at MIT's Sloan School of Management. He is an associate editor of the Journal of Accounting and Economics and The Accounting Review. His re- search centers on the effect of accounting methods on managerial behavior and on corporate finance generally
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  • Krishna G. Palepu

    1. Associate Professor of Business at the Harvard Business School. He is an associate editor of the Journal of Financial Economics, Journal of Accounting and Economics and The Accounting Review. His research focuses on corporate takeovers and other corporate finance issues.
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  • *We are grateful for the helpful comments of Paul Asquith, Gordon Donaldson, Bob Kaplan, and Richard Leftwich.

Abstract

In May 1987, Apple Computer announced that it would pay $5 million in cash dividends on its common stock your cents per share) for the first time in its history. On the day of the announcement, the market value of Apple's equity rose by $219 million.

In May 1986, Emhart announced that it intended to issue 2.75 million shares to raise $102 million in new equity. Following the announcement, the market value of its existing equity fell by $23 million.

In February 1939, General Motors declared a 2-for-1 stock split for the first time since 1955, and increased its dividends. The announcement led the market value of GM's equity to increase by $1.3 billion.

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