Underreaction to Dividend Reductions and Omissions?

Using a sample of 2,337 cash dividend reduction or omission announcements over the 1927 to 1999 period, this study reports significant negative post-announcement long-term abnormal returns, which last 1 year only. However, this long-term abnormal performance is driven by the post-earnings-announcement drift. After controlling for the earnings performance and the skewness of buy-and-hold abnormal returns, there is no compelling evidence of a post-dividend-reduction or post-dividend-omission price drift.