Stock Price Reaction to Dividend Increases in the Hotel and Restaurant Sector

Abstract

This study assesses the stock price reaction to announcements of dividend increases by firms in the hospitality industry using a standard event study methodology. Results indicate that dividend increases are favorably received by market participants because a statistically significant positive market reaction is observed. Results of a cross-sectional analysis show that the size of the market reaction across firms is positively related to the magnitude of the dividend increase. These results imply that managers ought to carefully consider the ramifications of a change in dividend policy because such changes appear to be perceived as signals of the firm’s future financial condition.