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By Laarni Bulan, Narayanan Subramanian and Lloyd Tanlu


We acknowledge the excellent research assistance of Arina Blechter, Leigh Cohen, Josh Goldfisher, Thang Nguyen and Mathew Thomas. We thank seminar participants from Brandeis University and the Eastern Finance Association 2006 Annual Meeting for helpful comments and suggestions. The usual disclaimer applies. 1 When Are Dividend Omissions Good News? A significant number of dividend omissions are actually good news, signaling a turnaround in the fortunes of the omitting firms after a period of poor performance, and frequently resulting in a resumption in dividend payments within five years of the omission. The market reaction, however, is similar for good and bad omissions, indicating that investors do not separately identify the two at the announcement of omission. We find two key determinants of whether an omission is good or bad. First, we find that good omitters have stronger fundamentals at the time of omission- they have higher profitability and lower levels of debt overhang. Our results suggest good omitters utilize the cash saved by the omission to reduce their (already low) overhang while ba

Year: 2005
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