Asymmetric Responses to Dividend Announcements: A Case for Ambiguity

This paper investigates how changes in the macro-financial environment impact the way in which capital market prices react to dividend announcements. Using a sample of 841 dividend announcements by French companies belonging to the SBF 120 index, we examined the role of changes in the ambiguity level (Knightian uncertainty) around the announcement date (implied volatility ? VCAC ? is used as an empirical proxy for ambiguity) on the response of investors to a release of dividend information. Based on a global sample and applying interaction methodology, we found that, consistent with ambiguity theory, an increase in VCAC leads investors to place more weight on news of bad dividends than on news of good dividends. When the sample is split, depending on the VCAC sign, the results are more complex. We actually obtained an important asymmetric impact between good and bad news for the larger window [-15; +15] but not for the smaller one [-1; +1]. Nevertheless, in this latter case, we observed that, consistent with the ambiguity explanation, the reaction to good (bad) news decreases (increases) dramatically when ambiguity increases, compared to when ambiguity decreases. JEL code: G14, G35.