Distinguishing Dividends from Earnings Signals: The Case of the Mandatory Dividends

In this paper we analyze the ex-dividend day stock price behavior, for an extended sample of  firms from three different  capital markets ,which however share the same distictive characteristic. Brazil , Chile and Greece all have mandatory dividends paid as a percentage of firm earnings.  This charactetristic provide a  unique opportunity to test whether contamporaneous earnings and dividend announcements have differential signaling effects. Dividends are hypothesized to encompass a forward looking signal whereas earnings are associated with past performance. We control for tax differentials in the three market, and crate a proxy for the expected dividend. We perform standard events for expected and unexpected increases and decreases of dividends. We compare our results with those of other capital markets where mandatoty dividends do not exist.