The relative importance of competition and contagion in intra-industry information transfers: An investigation of dividend announcements

Large revisions in dividends are accompanied by stock price reactions for i ndustry rivals of the announcing firm. Though these effects are near-zero o n average, their magnitude differs systematically across the firms in the i ndustry. Rivals that are unlikely to be affected by competitive realignment s within the industry tend to experience stock price effects like those of the announcing firm. Those that are likely to be affected tend to experienc e statistically insignificant reactions of the opposite sign. Thus, for som e rivals, competitive effects apparently offset contagion effects. We find supporting results for changes in rival's dividends over a longer period.