Dividend clienteles and the information content of dividend changes

We reason that dividend-yield surprises are perfectly correlated with dividend surprises. If investors with preference for dividends are the marginal investors in high-yield stocks, the price reaction to a dividend change should be larger, the higher the anticipated yield of the stock. An examination of over 8,500 dividend changes shows that price reactions to dividend increases are significantly more positive and to dividend decreases significantly more negative for high-yield stocks. Also, the price reactions to dividend changes are larger and the yield effect is stronger for low-priced and small-firm stocks, perhaps because of greater information content and higher transaction costs.