A test of the relative pricing effects of dividends and earnings: Evidencefrom simultaneous announcements in Japan

We study the pricing effects of dividend and earnings announcements by taki ng advantage of the unique setting in Japan where managers simultaneously a nnounce the current year's dividends and earnings as well as forecasts of n ext year's dividends and earnings. Defining surprises as deviations from an alysts' forecasts, we find that share price reactions are significantly aff ected by earnings surprises, especially management forecasts of next year's earnings. The information content of dividends is marginal and is restrict ed to announcements of next year's dividends. Consistent with Modigliani an d Miller's dividend irrelevance proposition, current dividend surprises hav e no material impact on stock prices in Japan.