Abstract
This paper examines special dividends in relation to the business cycle. The evidence shows that there are more special dividends in economic expansions than contractions. The decision and returns of special dividend activities are highly correlated to macroeconomic variables. The result indicates that the timing of special dividend distributions can be driven by the business cycle. Additionally, the returns generated from special dividend announcements are positive and superior in contractions. The finding suggests that the signalling effect of the announcement is stronger in recessions. Firms that have ability to distribute special dividends in economic downturns are recognized as better performers.
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