Investor anticipation of dividend initiations and omissions - Do investors really underreact? John Cotter 1 , Henk von Eije 2 , Mohamad Faour 1 , and Cal Muckley 1 1 University College Dublin 2 University of Groningen April 11, 2019 Abstract In this paper, we assess investors’ anticipation of dividend initiations and omissions, and the extent to which investor anticipation about the likelihood of these events can influence their valuation effects. We find a negative and statistically significant relation- ship between the degree of investor anticipation and the magnitude of the announcement- period abnormal returns for dividend initiating and omitting firms. Using Propensity- score matching to obtain counterfactual firms that are equally likely from the investors’ perspective to initiate or omit dividend payouts, we estimate the valuation effects of dividend initiations and omissions. We find no reliable evidence of long-run abnormal returns in the three years following dividend initiations and omissions, but robust evi- dence of pre-announcement abnormal returns. These abnormal returns are, in the case of omissions, negatively related to announcement-period and post-announcement abnormal returns, suggesting that event-related information is incorporated into prices prior to the announcement. Keywords— Dividend initiations, dividend omissions, information content, underreaction, investor anticipation, self-selection john.cotter@ucd.ie; j.h.von.eije@rug.nl; mohamad.faour@ucdconnect.ie; cal.muckley@ucd.ie The authors would like to thank Shivam Agrawal, Claudia Custodio, Emmanuel Eyiah-Donkor, Halit Go- nenc, Bruce Grundy, Jens Hagendorff, Niels Hermes, Ranko Jelic, Chenglu Jin, Henning Schroeder, Grzegorz Trojanowski, Patrick Verwijmeren, seminar participants at the University of Groningen, the Centre for Finan- cial Markets at University College Dublin, the 2015 Australasian Finance and Banking Conference, the 2018 Corporate Finance Workshop at Queen’s University Belfast, the 2018 Young Finance Scholars Conference at 1