Corporate scandals and the market response of dividend payout changes

This paper examines whether the dividend valuation changed after corporate accounting scandals such as that of Enron in October 2001 broke out. We find that dividend increasing firms experienced positive abnormal returns in the industry affected by corporate scandals up to four months after the first scandal in the industry became public. We interpret this finding in the context of the agency theory of Jensen (1986). To provide a perspective, we examine the dividend valuation from early 1980s to early 2000s, and find that the dividend valuation increased consistently for this time period. We also find that the dividend valuation was highest in the information technology industry after the year 2000. These findings fit well with the agency theory as well.