Cash Dividend Announcements and Abnormal Returns in the Lodging and Restaurant Sectors: an Empirical Examination

ABSTRACT

Dividend relevance has been a subject of significant recent interest for academicians and researchers in the area of hospitality finance. The subject has attracted noticeable controversy, given the stringent or no-dividend payout policies observed in many hospitality firms. This study builds on existent dividend literature in hospitality finance by examining the relevance of cash dividends for public lodging and restaurant firms in U.S. equity markets. It uses the event study approach to investigate abnormal returns for lodging and restaurant firms caused by cash dividend announcements during the period 1994–2002. Results are suggestive of the fact that at least during the test period, cash dividend increases were positively received by equity holders in both lodging and restaurant sectors. Results also suggest that dividend effect and abnormal returns were significantly different for the two sectors. As such, the issue of dividend relevance in hospitality firms and the need for more prudent dividend policies in these firms is better understood.