Dividend increases and initiations and default risk in equity returns

Andreas Charitou*, Neophytos Lambertides, Giorgos Theodoulou

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This study extends the Grullon, Michaely, and Swaminathan (2002) analysis by incorporating default risk. Using data for firms that either increased or initiated cash dividend payments during the 23-year period 1986-2008, we find reduction in default risk. This reduction is shown to be a priced risk factor beyond the Fama and French (1993) risk measures, and it explains the dividend payment decision and the positive market reaction around dividend increases and initiations. Further analysis reveals that the reduction in default risk is a significant factor in explaining the 3-year excess returns following dividend increases and initiations.

Original languageEnglish
Pages (from-to)1521-1543
Number of pages23
JournalJournal of Financial and Quantitative Analysis
Issue number5
Early online date23 May 2011
Publication statusPublished - Oct 2011


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