Does bundling matter?
Zachary Kaplan*
University of Chicago Booth School of Business
zkaplan@chicagobooth.edu
February 2014
* I thank the members of my dissertation committee for their invaluable support and help: Phil
Berger (Chair), Christian Leuz, Haresh Sapra and Sarah L.C. Zechman. I thank Joseph Gerakos,
Xiumin Martin, Gerardo Perez, Douglas Skinner and Andrew Sutherland for helpful comments.
Does bundling matter?
Abstract
Firms often release disclosures to investors at the time of the pre-scheduled earnings announcement (“bundling”), then provide relatively few disclosures during the course of the quarter. I investigate the trade-offs of bundling. Consistent with bundling improving investor processing,
bundling increases immediate reactions to disclosures and lowers drift. Firms that bundle have
lower bid-ask spreads, consistent with bundling improving price efficiency. Firms more frequently
bundle more significant disclosures, consistent with firms bundling when there are greater price
efficiency benefits to improving information processing. Overall, the evidence suggests the practice of bundling evolved to improve investor processing of information.
Does bundling matter?
1. Introduction
An important question to understanding how investors’ process disclosures is how combining a second disclosure with an initial disclosure affects investors’ perception of the initial disclosure. Firms release managerial forecasts, dividend declarations, merger announcements, executive changes and buyback updates more frequently on days when they announce earnings than on
days when they do not. I investigate whether the practice of bundling disclosures with earnings
(“bundling”) evolved to affect the attention disclosures receive from investors. Given the ease
with which firms could release disclosures a few days from the earnings announcement relative to
at the earnings announcement, the effect of bundling on investor attention has implications for
our understanding of whether managers disclose to make information more accessible for investors.
I expect bundling affects investor attention by affecting an investor’s cost of valuing a
company. Higher processing costs discourage participation in the firm’s equity market, by increasing rational inattention (Sims 2003). Releasing information at the pre-scheduled earnings
announcement can decrease the cost of processing a disclosure because when investors do not
know when a firm will disclose, the cost of processing a disclosure includes the cost of searching
for disclosures when the firm does not release information. Wasted effort can cause investors to
be rationally inattentive to non-pre-scheduled disclosures. The high activity level of information
intermediaries and the prevalence of conference calls to provide context could also reduce the
cost of processing bundled disclosures (Kimbrough 2005; Zhang 2008; Bushee et al. 2010). Alternatively, if investors are over-loaded with information around earnings announcements, and
the marginal cost of processing a disclosure increases with the amount of information disclosed,
1
bundling could increase rational inattention (Li 2008; Taylor 2009). Disclosing separately could
also increase the extent to which investors fixate on a disclosure when valuing the firm.
To study the effect of bundling on investor attention, I assume any increase in attention
will increase the rate at which disclosure becomes impounded into price. Prior research demonstrates that markets under-react to disclosures during the announcement window.1 Prior empirical and theoretical research has linked the under-reaction to inattention (Dellavigna and Pollett
2009; Hirschleifer et al. 2009).2
A challenge to studying how bundling affects the rate at which disclosure becomes impounded into price is that firms select when to bundle disclosures (Waymire 1984), so differences
in market reactions to bundled and non-bundled disclosures could result from either selection or
investor processing. To separate the selection effect from the processing effect, I need an instrument which shifts the probability of the firm bundling. I study how bundling affects the market
reaction to dividend announcements, because disclosure precedent creates exogenous variation in
the extent to which firms release dividends with the pre-scheduled earnings announcement (Kalay
and Lowenstein 1985; Graham et al. 2005; Einhorn and Ziv 2008). Prior bundling increases the
probability of the firm subsequently bundling, yet is plausibly unrelated to the content of the current quarter's dividend news. After instrumenting for the endogenous decision of the firm to
bundle this quarter using the exogenous (relative to this quarter's news) decision to bundle a prior
quarter’s earnings, I find that bundling increases the immediate reaction to dividend news. I also
find bundling lowers drift. In addition, the comparability of dividend payments across firms and
1
For papers on the incomplete reaction to disclosure see (Ball and Brown 1968; Bernard and Thomas 1990;
Michaely et al. 1995; Bernatzi et al. 1997; Ng et al. 2008).
2
If inattention causes under-reaction, and investors can become informed (or attentive) at some cost, evidence of
increased under-reaction can be interpreted as evidence of higher processing costs because when fewer investors process a signal markets will less completely incorporate the signal (Grossman and Stiglitz 1980; Kim and Verrecchia
1994; Hong and Stein 1999).
2
across time – dividend payments are cash – enables me to rule out the alternative explanation that
bundled dividend changes have greater implications for future dividends.
To ensure my results are not specific to the setting of dividends and earnings announcements, I also investigate the effect of bundling on immediate market reactions and drift for a second disclosure, seasoned equity offering registrations (SEOs). Unlike dividend changes, which
contain information about the persistence of the current quarter’s earnings change (DeAngelo et
al. 1996), firms registering SEOs tend to miss future earnings targets and these misses are not related to the current quarter’s earnings change (Loughran and Ritter 1997). Investigating the effect of bundling on market reactions for a second disclosure helps to rule out the possibility that
the increased immediate market reactions to bundled dividend changes occur because of the
complementarity of dividends and earnings. Consistent with bundling causing increased market
reactions because of a general information processing effect, I find larger immediate reactions and
less drift for bundled SEOs.
My second set of hypotheses focuses on understanding whether benefitting investors and
their information processing is a key determinant of a firm’s choice to bundle information. Although firms bundle and bundling improves information processing firms could still bundle to
lower their own costs of producing information and improving investor processing could be an
externality rather than a determinant of that choice.3
Two aspects of bundling suggest the practice cannot be explained by production costs
alone. First, pre-scheduling the time at which the firm will release the bundle implies a concern
3
I find firms bundle managerial forecasts 77% of the time they issue a managerial forecast (Anilowski et al. (2007)
and Rogers and Van Buskirk (2013)) and 22% of the time they issue a dividend declaration (Kane et al. (1984) and
Leftwich and Zmijewski (1994)). I also find firms bundle 22% of buyback updates, 9% of merger announcements,
6% of debt issuances, 10% of announcements of CEO and CFO changes and 7% of announcements of board and
other executive changes.
3
for the ease with which investors can acquire information within a reasonable time period of its
release. Second, while firms may find their own earnings to be a useful input to their own decisions, which ultimately become disclosures, the decision usefulness of earnings can only explain
firms’ making more disclosures around the time of the earnings announcement rather than at the
exact time of the announcement. For many disclosures if firms did not wish to bundle, they could
simply issue an additional press release at an earlier or later time, and still comply with regulation
8-K, which requires disclosure within five days of a material event.
To more formally differentiate an investor processing motivation for bundling from a
production cost motivation, I test if the frequency of bundling increases when the investor processing benefits to bundling are greater. First, I test whether firms bundle more significant news
more frequently. Conditional on firms attempting to improve processing by bundling, the improvement in processing will be greater for more significant news. To attempt to rule out production costs as an explanation for increased bundling of more significant news, I study how bundling varies with the significance of disclosed news in settings where 1) the process of producing
the disclosure remains similar as the significance of the news changes and 2) the timing of the disclosure does not affect the operations of the firm (bundling involves disclosing on a different day).
Finally, I also include firm-fixed effects to control for disclosure precedent. I argue dividend
changes (compared to non-changes) and CEO/CFO changes (compared with other executive
changes) satisfy the above criteria. In each setting I find firms bundle more significant news 3-5%
more frequently.
Second, I examine whether bundling frequency varies with the firm’s investor base. Transient investors trade more frequently than non-transient investors (Bushee 2001). If part of that
trading frequency arises because transients are better able to process disclosures without interme4
diation or better able to search for disclosure, the benefits of bundling will be lower for firms with
more transient investors. Assuming firms bundle to decrease rational inattention, firms with
more transient investors will have less incentive to bundle. Consistent with bundling clienteles
existing, I find the percentage of transient investors declines with the frequency of bundling.
To better understand why a majority of firms choose not to bundle in spite of the price efficiency benefits, I informally explore the trade-offs of bundling by surveying investor relations
professionals (IR). IR professionals at firms that do not bundle suggest they declare their dividends at board meetings, which they argue is a transparent policy (Graham et al. 2005). IR professionals at firms that bundle suggest they bundle because investors “want” information around
the earnings announcement. A potential cost of bundling dividend declarations may arise because audit committees rather than the full board tend to meet around earnings announcements.
Although no investor relations professional explicitly acknowledged this concern, deciding the
dividend amount without having the entire board present may result in sub-optimal decision
making.4
My paper makes several contributions. First, I contribute to the literature on disclosure
strategy. While prior literature investigates the extent to which firms disclose strategically depending on the sign of news unconditionally (Damodoran 1989; Patell and Wolfson 1982) or conditional on trading incentives (Cheng and Lo 2006; Brockman et al. 2008), few papers investigate
the extent to which managers disclose strategically to affect the accessibility of information. Prior
literature demonstrates that firms attempt to make information more accessible by meeting with
investors (Solomon and Soltes 2013) and responding to investor questions (Heinrichs 2013). We
4
A survey of investor relations professionals at seven S&P 500 firms indicates that six of the seven hold board meetings more than one week from the earnings announcement and the seventh hold the board meeting more than a day
before the announcement.
5
have limited knowledge of the way firms attempt to affect investor processing of disclosures, although the link between drift and investor inattention suggests firms have the potential to do so.
My joint findings that bundling improves investor processing and firms bundle more significant
news more frequently suggest the practice of bundling has evolved to improve investor processing
of information.
Second, I contribute to the literature on bundling by demonstrating disclosures have larger immediate reactions when firms release them with the earnings announcement. Prior bundling papers have been primarily concerned with trying to better understand disclosure in the
presence of the confounding earnings announcement event (Leftwich and Zmijewski 1994;
Anilowski et al. 2007, Rogers and Van Buskirk 2013), rather than investigating the economic
consequences of bundling itself. One exception is Waymire (1984), who demonstrates firms
bundle good news managerial forecasts with bad news earnings forecasts and concludes bundling
arises to at least some extent to dampen the volatility associated with the release of transient bad
earnings news. A limitation of this explanation is that time-varying factors such as the sign of the
news explain little of the variation in bundling (Rogers and Van Buskirk 2013). I find evidence
consistent with a time-invariant concern for investor processing explains some percentage of bundled disclosures.
Third, I contribute to the literature on investor processing costs. A lengthy literature suggests 10-K disclosures both respond to change in investors’ processing cost technology
(Blankespoor 2011) or affect investors’ processing (Miller 2010; DeFranco et al. 2011; Lawrence
2013). Demonstrating bundled disclosures receive greater attention from investors broadens our
understanding of investors’ processing cost technology and extends this understanding beyond
the 10-K.
6
The paper proceeds as follows: Section two reviews the literature and develops hypotheses. Section three estimates the impact of bundling on the immediate and subsequent market
reactions to information. Section four examines when managers switch from bundled to not
bundled dividend declarations and vice-versa. Section five concludes.
2. Related Literature and Hypothesis Development
2.1 Inattention and the timing of disclosure
Research assuming market efficiency has struggled to explain the pervasive evidence that
markets initially underreact to news (Fama and French 1996). The theoretical literature responded to this failure by introducing market frictions which can generate predictable returns over
short windows. Hong and Stein (1999) introduce a model where a limited number of newswatchers observe and react to firm disclosures. They find the speed with which prices adjust to
news increases with the number of news watchers, demonstrating that limited attention combined
with either risk-aversion or wealth constraints generates momentum. Two recent empirical studies confirm the intuition of this model by documenting that the immediate response to an earnings surprise decreases and drift increases when investors’ opportunity cost of attention is higher
(Dellavigna and Pollet 2009; Hirshleifer et al. 2009). Dellavigna and Pollet (2009) demonstrate
lower immediate reaction to Friday earnings surprises, which they attribute to a decrease in market participation on Fridays. Hirshleifer et al. (2009) demonstrate lower immediate reaction to
earnings surprises on days when many firms release earnings, where the ability to trade in response to other announcements increases the opportunity cost of attention. These studies link
the market price’s initial under reaction to volume, further suggesting that the failure of price to
fully reflect information arises because of a dearth of investors valuing the firm.
If market frictions such as inattention or processing ability affect the market reaction to
7
information, we might expect different market reactions to the same disclosure when that disclosure is released with earnings compared to at another time. A number of studies indicate the
firm’s information environment changes around earnings announcements. Managers hold conference calls at earnings announcements, creating an opportunity for investors to extract additional details about the disclosure (Bushee et al. 2003). As studies have linked the credibility of
disclosure to market reactions (Hutton et al. 2003; Ng et al. 2013), timing disclosures to coincide
with earnings announcements enables firms to respond to investor questions and offer additional
credible information. In addition, information intermediaries such as analysts and media outlets
more intensively cover the news firms disseminate at the time of earnings announcements
(Bushee et al. 2010). If some subset of investors do not search for firm disclosures, but instead
rely on intermediaries to provide the information they use to trade, the greater activity of intermediaries will increase the number of investors valuing the firm (Zhang 2008; Soltes 2009).
Information disseminated through more accessible channels can be thought of as being
processed at lower cost. A rational investor will monitor a specific channel when the benefits to
doing so exceeds the costs in terms of time and money. Certain channels, such as reading news
wires, impose high costs investors. In contrast, reading the Wall Street Journal may be pleasant
for investors, and thus impose a low cost on them. In this sense, dissemination may decrease rational inattention (Wiederholt 2010).
Hypothesis 1: Bundling will increase the immediate market reaction to disclosure and decrease drift.
2.2 Firm preference for complete market reactions
If a benevolent social planner determined the timing of disclosure, he would select the
time which minimized the joint cost of the firm producing the disclosure and investors processing
8
the disclosure.5 In reality, firms select the timing of their disclosure, so firms will only choose the
socially optimal time if the benefits they realize from doing so exceed their costs. If investors react
to the inaccessibility of information by not valuing the firm, increasing the accessibility of information will increase the number of investors participating in the share market. The effect of increased participation will depend on the structure of the share market, although generally I expect
increased participation to have a positive effect on valuation.
In complete markets where uninformed investors condition their demand on their expectations of the number of informed investors, increasing the number of informed investors will
increase price efficiency (Kyle 1985). Price efficiency has been linked to liquidity (Glosten and
Milgrom 1985; Kelly and Ljundquist 2012), cost of capital (Amihud and Mendehlson 1986;
Lambert et al. 2012) and investment efficiency (Fishman and Haggerty 1989; Kumar et al. 2012),
which have obvious links to firm value.
The firm’s benefit to increasing the number of investors may be even greater in markets
with short-selling constraints where uninformed investors do not form rational expectations for
the number of informed investors (Merton 1987). Miller (1977) models an environment in
which investors value the firm with error, do not form rational expectations for the number of
other investors valuing the stock and cannot short-sell. In such an environment increasing the
number of investors who value the firm will increase the average price of a share of stock, holding
constant the mean and variance of valuations. The positive relationship between expected price
and participation holds even in markets where investors are risk-neutral and have infinite horizons.
When there are agency conflicts, increased awareness may have negative consequences for
5
I assume that larger immediate reactions and lower drift is evidence of lower processing costs.
9
managers even when awareness has a positive effect on price. If more limited monitoring enables
managers to increase perquisite consumption (Nagar et al. 2003) or limit the threat of investor
activism, managers may benefit from making information less accessible.
The empirical literature documents that firms incur incremental expenses to assist investors in processing information. Heinrichs (2013) finds that 58% of companies contacted by an
investment manager offer to help interpret the MD&A section of their 10-K. Another stream of
literature documents that senior executives routinely meet with investors, even though regulation
FD prohibits the disclosure of material non-public information at these meetings (Bushee and
Miller 2012; Solomon and Soltes 2013; Bushee et al. 2013). One interpretation of these studies
is that by incurring expenses to improve investor processing, firms reveal a preference for better
processing.
Hypothesis 2A: Firms will disclose strategically to lower investors’ processing costs.
Another disclosure strategy managers may follow is to vary the timing of disclosure to increase attention to good news and decrease attention to bad, in order to maximize the share price
(Dye 1985; Shin 2003). One constraint which may limit strategic disclosure is that it may influence the manager’s reputation for transparent reporting, a reputation which Graham et al. (2005)
suggest 92% of managers wish to establish.
Hypothesis 2B: Preferences for lowering investor processing costs will vary with the sign
of the news.
3. How does bundling affect the immediate market reaction to news?
3.1 Data sources and descriptive statistics
I obtain the dates of all dividend declarations from the CRSP events database. I select all
declarations where the firm made a declaration in the previous quarter beginning in 1994 and
10
ending in 2011. I require the firm declare the dividend no more than 130 days after the prior
dividend declaration and no less than 50 days after the prior dividend declaration date. Ensuring
that the firm did not delay or accelerate its dividend announcement increases the comparability
of bundled and non-bundled dividend declarations. I omit firms that stop paying dividends from
the sample, as CRSP does not identify a declaration date for these firms and firms who stop paying dividends frequently indicate at the time of the stoppage when they plan to resume paying a
dividend, complicating any analysis. I require that the firm have data on CRSP beginning one
trading day before the dividend announcement and ending one trading day after. To identify
whether the firm bundled its earnings announcement with the dividend declaration, I require
that the firm have actual earnings reported on I/B/E/S for an earnings announcement within
ninety days of the declaration date.
I define a dividend declaration as bundled if the dividend
declaration occurs within one calendar day of the earnings announcement.
After imposing the sample selection criteria above, I retain 95,355 dividend declarations.
In 2.7% of observations the firm decreased their dividend. In 17.8% of observations the firm
increased their dividend. In 79.5% of observations the firm did not change their dividend.
I find firms bundle 22.6% of dividend declarations. The percentage of bundled declarations is higher for firms that change their dividend (25.3%) than those that do not (21.9%), and
higher for those that decrease their dividend (26.2%) than those that increase it (25.1%).
While dividend increases are around eight times more frequent than decreases, the economic magnitude of the median increase is much smaller than the median decrease. Only onequarter of increases change the dividend by at least twenty percent, while three-quarters of dividend decreases change the dividend by at least twenty percent. The distribution of dividend increases is highly right-skewed as one-percent of dividend increases at least triple the size of the div11
idend. The frequency of bundling has increased slightly over time, from 19.4% in 1994 to 23.6%
in 2011.
To investigate the characteristics of firms that bundle, I first rank all the firms on
Compustat from zero-to-one on the basis of four characteristics, market value of equity, total assets, book-to-market and return on assets. I present the average percentile rank for firms that
bundle and do not bundle in Table I Panel A. I find that the difference between bundling and
non-bundling firms is not statistically significant for any of the four characteristics, when I compute the difference clustering standard errors by firm. I also present the percentage dividend yield
computed by scaling the previous quarter’s dividend amount by the price one week before the
firm declares this quarter’s dividend. The yields for both bundled and non-bundled firms are
around 0.75% per quarter which equates to an annual yield of around 3%.
In Table I Panel B, I present descriptive statistics by both the sign of the dividend change
and bundling. Column (1) demonstrates that as a percentage of the prior dividend, bundled increases are economically larger than non-bundled increases (statistically insignificant). Firms that
bundle their dividend decrease also tend to decrease their dividend more than those that do not
(statistically significant). Column (2) demonstrates these differences are similar if I scale the dividend change by price rather than the prior quarter’s dividend. Column (3) demonstrates the previous dividend yield is similar for bundled and non-bundled firms, within a dividend change category, but higher for firms decreasing their dividend. Column (4) presents market-adjusted returns
from the day before the dividend change to the day after the dividend change. Returns for bundled dividend increases (decreases) are significantly higher (lower) than non-bundled changes.
Column (5) adjusts the returns for bundled dividend declarations for the difference between the
12
earnings reported this quarter and the earnings reported the same time last year.6 I find adjusted
returns for bundled decreases (increases) are significantly (insignificantly) different from nonbundled returns. Finally, one motivation for believing that bundling increases awareness of a dividend change is that many investors trade around earnings announcements. In column (6), I
demonstrate that abnormal volume increases for bundled declarations, irrespective of the sign of
the dividend change.
3.2 Does bundling dividends affect the immediate price response to dividend changes?
The null hypothesis that bundling does not affect the market reaction to dividend changes, predicts bundled announcements will have a similar market reaction as non-bundled announcements. To test this hypothesis I regress returns on a dummy indicating the firm bundled
its dividend announcement with earnings (“bundle”), controls for the dividend change, and my
variable of interest, the percentage dividend change interacted with bundle. As controls for the
direct effect of the dividend change on returns, I include the percentage dividend change, a
dummy indicating an increase, a dummy indicating a decrease and the dividend change scaled by
price. The extensive controls for dividend news should allow the interaction to capture any incremental effect of the dividend change on returns as a result of bundling. The hypothesis that
bundling increases the immediate market reaction to dividend news predicts a positive coefficient
on this interaction.
,
%∆
∗ %∆
1
In Table II column (1), I report results of estimating model (1) using market-adjusted returns from the dividend announcement window beginning one trading day before the dividend
6
I explain in section 3.3 the exact procedure I follow to adjust returns of bundled dividend changes for earnings
news.
13
announcement and ending one trading day after. I include firm-fixed effects to control for the
dividend policy of the firm. The significant coefficient estimate on the variable of interest
∗ %∆
(
) suggests the dividend change has a significantly larger effect on announce-
ment window returns for firms that bundle their dividend and earnings announcements.
A potential challenge interpreting this result is that for bundled announcements the earnings surprise may be a correlated omitted variable, as the earnings surprise is correlated with the
sign of the dividend change and causally related to returns. To adjust announcement window
returns for the earnings news released simultaneously, I follow Rogers and Van Buskirk (2013). I
first pool all earnings announcements between 1994 and 2011 with available data for the actual
value of earnings one-year prior. I then calculate the earnings surprise as the difference between
this quarter’s earnings and split-adjusted earnings reported one year prior. I then regress marketadjusted returns from the earnings announcement window on the sign of the earnings surprise,
the winsorized earnings surprise scaled by price and the winsorized earnings surprise scaled by
price multiplied by the winsorized absolute value of the earnings surprise scaled by price:
2
,
I then extract the residual from model (2) for all bundled dividend announcements, to obtain a measure of dividend announcement returns adjusted for the expected effect of the earnings
surprise. I use this residual as my dependent variable for bundled announcements. For nonbundled observations I continue to use simple market-adjusted returns as the dependent variable.
I report results with the dependent variable computed as described above in column (2)
(“seasonally adjusted returns”). The value of the coefficient of interest (
∗ %∆
) sug-
gests doubling the dividend will have on average a 1.5% larger effect on returns over the announcement window when the firm bundles the dividend announcement with an earnings an14
nouncement than when it does not.7 This estimate implies that a firm with a 3% annual dividend yield who cuts their dividend by 50%, on average would have a -2.1% announcement window return when the firm bundles the dividend decrease with earnings compared to a -1.4% announcement window return when the firm does not.
I find similar results in column (3) when I adjust returns using an analogous procedure as
that described to calculate seasonally adjusted returns, except I compute the earnings surprise by
subtracting the average of the most recent analyst forecast on the I/B/E/S detail file from actual
earnings. This significantly reduces the size of my sample, as only about one-half of all dividend
change firms have analyst following (I require non-bundled firms to have analyst following as
well). I continue to find a statistically significant coefficient on the variable of interest, which is
nearly identical to the one obtained after controlling for earnings news by seasonally adjusting the
dependent variable.
To address the possibility that firms with more significant dividend news choose to bundle more frequently, in column (4) I re-estimate model (1) after inserting a separate firm fixed effect for dividend increases, dividend decreases and declarations which do not change the dividend
amount. This design should control for any correlation between the market reaction to dividend
changes and the time-invariant probability a firm will bundle. I continue to find a statistically
significant coefficient of interest.8
7
When I adjust announcement window returns for the earnings surprise, I estimate the average effect of the earnings
surprise pooling all earnings announcements, including both dividend payers and non-payers. Independently examining results using only dividend payers, dividend changers and non-dividend payers, I find similar coefficient estimates for model (2). I conclude the sample selected to estimate the average effect of the earnings surprise on returns
does not affect the results in Table II.
8
In untabulated analysis, I compare the immediate market reaction to dividend declarations not bundled with earnings or any other disclosure to the immediate market reaction to dividend declarations not bundled with earnings but
bundled with another non-earnings disclosure. I find similar immediate market reactions to both sets of dividend
changes not bundled with earnings.
15
A concern with the test results reported in columns (1) – (4) is that firms choose to bundle
more significant dividend news (not bundle less significant news) and that selection rather than
processing explains the increased market reaction to bundled dividend changes.
To design a test robust to this possibility, I need a variable which shifts the probability of
the firm bundling the dividend with earnings, which is plausibly uncorrelated with the news the
firm will disseminate at the time of its subsequent dividend declaration. The bundling of previous dividend declarations affects the probability of the firm bundling a subsequent dividend declaration.9 I argue that the time between dividend declarations limits the ability of managers to
select to bundle based on unobservable news (news after controlling for the sign and magnitude
of the dividend change), making this assumption plausibly valid.
In model (1), the variable of interest is an interaction between the potentially endogenous
choice to bundle and the percentage change in the dividend. To instrument for this interaction, I
multiply the exogenous prior quarter’s bundling with the percentage change in dividend. I also
instrument for bundling using the prior quarter’s bundling, so I have two endogenous variables
(
&
∗ %∆
and two instruments
&
∗ %∆
I report results of the first stage, in which I regress all control variables and the two instruments on each endogenous variable in columns (5) – (6) of Table II. I find bundling last
quarter shifts the probability of bundling this period by 56% (t=61.16). The percentage change in
the dividend interacted with the prior quarter’s bundling also has substantial explanatory for this
quarter’s interaction, ruling out concerns of a weak instrument.
9
Surveys and theoretical studies provide a rationale as to why the timing of disclosure may be sticky from quarter to
quarter. Graham et al. (2005) survey managers and find that past disclosure choices set a precedent and investors
expect similar disclosure choices in the future. Einhorn and Ziv (2008) suggest in an environment where investors
react skeptically to changes in disclosure, firm’s disclosure policy will be sticky.
16
In column (7), I report instrumental variable (IV) estimates of the incremental effect of
bundling on the market reaction to dividend changes using seasonally adjusted returns as the dependent variable. I find the interaction of interest remains statistically significant and its magnitude increases slightly compared to estimates in columns (1) – (4). In column (8), I report IV estimates using only the sample of firms with recent analyst forecasts, adjusting returns for the earnings surprise computed using analyst forecasts. I continue to find significant results.10 In columns (9) – (10), I report results using a sample of dividend declarations where dividend expectations likely equal the prior dividend amount. I explain these results in a robustness section.
3.3 For which firms does bundling increase the magnitude of the reaction?
If a less active information environment during non-earnings announcement windows
causes the increased reaction to bundled dividend news, the incremental effect of bundling will
decrease with the amount of interest the firm attracts from investors during non-earnings announcements. I use two proxies for this level of attention 1) size and 2) analyst following. Larger
stocks tend to attract more attention from investors and information intermediaries, so more investors watch the stock during non-earnings announcement periods. Financial analysts assist investors in processing information and as a result aid the efficiency of the price response to disclosure (Zhang 2008). To examine the incremental effect of firm size on the incremental reaction to
bundled dividend changes, I augment model (1) by including interactions between size, %∆
∗ %∆
and
,
. I retain all control variables from model (1).
%∆
∗ %∆
10
∗ %∆
∗
%∆
∗
3
In untabulated analysis, I compute instruments using bundle from the same quarter the prior year
&
∗ %∆
and I continue to find statistically significant estimates.
17
I report results of estimating model (3) in Table III. I find that
is significantly negative suggest-
ing large firms have a significantly smaller incremental reaction to bundling than smaller firms.
The estimated incremental reaction to doubling the dividend for a bundled dividend declaration
falls from 2.7% for the smallest firm in my sample to 0.2% for the largest. When I use analyst
following in place of size to estimate model (3), I obtain similar, although slightly smaller and statistically insignificant coefficient estimates.
3.4 Does the complementarity of dividends and earnings cause larger market reactions?
Dividend changes have implications for the persistence of earnings (DeAngelo et al. 1992)
and market reactions to non-bundled dividend changes indicate the market recognizes this complementarity (Koch and Sun 2004). If the time between the dividend change and the earnings
announcement limits the number of investors who recognize the dividend change has implications for earnings persistence, bundling could generate larger market reactions to dividend changes by increasing the number of investors who recognize the complementarity of dividends and
earnings.
Alternatively, disclosing into a more active information environment could affect the
number of investors who process the disclosure during the announcement window (Zhang 2008;
Soltes 2009; Bushee et al. 2010; Drake et al. 2012).
If bundling dividend announcements with earnings announcements increases the immediate market reaction because earnings news complements dividend news, I would expect the results in this paper only to have external validity to considering pairs of disclosures which complement one another. In contrast, if bundling elicits more complete market reactions by increasing
awareness, I would expect the results in this paper to have external validity to considering a broad
number of disclosures.
18
To distinguish between the information environment and complementarity explanations,
I examine how the immediate market reaction and drift vary with bundling, for dividend initiations and SEO registrations, two disclosures with a different relationship with future earnings.
Dividend changes have implications for the persistence of current earnings (Kane et al. 1984;
DeAngelo et al. 1992; Koch and Sun 2004; Skinner and Soltes 2011), but do not signal future
earnings changes independently of current earnings (DeAngelo et al. 1996; Bernatzi et al. 1997;
Grullon et al. 2005). In contrast, SEO registrations (dividend initiations) signal future earnings
decreases (increases) relative to expectations (Healy and Palepu 1988; Loughran and Ritter 1997).
At the same time, both SEOs and dividend initiations generate substantial drift, suggesting the
market does not completely impound the implications of the disclosure into price during the announcement window (Loughran and Ritter 1995; Michaely et al. 1995).
3.4.1 Does bundling affect the timing of the market response to SEOs?
Approximately 5.7% of firms that register to issue equity do so within one trading day of
an earnings announcement. I test whether bundling affects the immediate reaction to the registration. In Table IV, column (1), I demonstrate that bundled registrations have significantly lower (-1.4%) seasonally adjusted returns. In column (2) I find that market reactions remain more
negative after controlling for the year of the offering, the marketplace of the offering, a series of
firm characteristics, the size of the offering relative to shares outstanding as well as a dummy variable indicating the firm issued the securities on the day on which it registered the offering.11 In
columns (3) and (4), I demonstrate that this larger initial market reaction translates into less drift
both with and without control variables.
11
The marketplace of the offering includes U.S. Public, U.S. Private, Euro Private, Euro Public, Shelf-registered and
withdrawn.
19
3.4.2 Does bundling affect the timing of the market response to dividend initiations?
To examine the effect of bundling on the initial and subsequent market reaction to dividend initiations, I select all firms that declare a quarterly dividend and have not declared a quarterly dividend in the previous two years (Healy and Palepu 1988). Approximately 26% of firms
bundle their dividend initiation with an earnings announcement. In column (5), I demonstrate
that seasonally adjusted returns are on average 1.1% higher when the firm bundles the dividend
initiation. In column (6), I demonstrate that this result is robust to including year fixed effects,
firm characteristics and the dividend yield as control variables. In columns (7) – (8), I demonstrate that this larger initial market reaction translates into less drift (-1.7%) both with and without control variables.
3.5 Robustness
3.5.1 Do bundled dividends have different implications for future performance?
In this section, I examine future firm performance to validate that bundled and nonbundled dividend changes have similar implications for future performance. If inattention affects
the timing of the price response to dividend changes without affecting future performance, the
larger immediate effect of bundled dividend changes on returns should translate into lower drift.
In addition, bundled and non-bundled dividend changes should have similar implications for future dividends and future earnings.
3.5.1.1 Returns
Prior research suggests changes in dividend policy affect returns for a period of three years
(Michaely et al. 1995). However, as long-window returns are a noisy variable and the effect of
bundling on the immediate response to dividend changes is fairly modest, even if returns fully
reverse over the period I would not have statistical power to identify the effect. As a result, I ex20
amine subsequent returns over both the sixty days after the dividend declaration (Dellavigna and
Pollett 2009; Hirschleifer et al. 2009) and at specific times when I expect subsequent events will
resolve the initial inattention (Bernard and Thomas 1990; Madsen 2013).
To estimate the effect of bundling on subsequent returns I modify model (2) by replacing
announcement window returns with subsequent returns. I report results in Table V. In column
(1), when I use returns for the sixty days following the dividend announcement window as the
dependant variable I find insignificant return reversals for bundled dividend declarations (t=0.3)
equal to about 25% of the incremental immediate return response. It is worth noting that many
of the control variables indicate there is substantial drift in returns during this window.
I expect rational inattention to dividend changes would lead to predictable returns at future dividend announcements, when investors learn the previously overlooked information (Madsen 2013). Examining returns over narrower announcement windows has an advantage of eliminating some of the noise which can affect the precision of estimates of long-window returns. In
column (2), I show that the interaction of bundle with the percentage dividend change loads with
a negative statistically insignificant coefficient (t=1.57) when I estimate subsequent returns over
the three-days around the subsequent dividend change. In column (3), I show that when I sum
returns over the subsequent four dividend change announcements the estimated reversals increase in magnitude and become marginally significant (t=1.70).12
3.5.1.2 Dividends and earnings
If dividend changes for bundled firms are more economically meaningful, bundled dividend changes would have a greater impact on subsequent dividend changes and earnings changes.
12
In untabulated analysis, I investigate whether bundling dividends with earnings affects post-earnings announcement drift. I find no difference in post-earnings announcement drift between firms that bundle their dividend declarations and those that do not.
21
To examine the impact of bundled dividend changes on future dividend changes, I modify equation (1) by replacing the dependant variable returns, with the split-adjusted difference between the
dividend declared this quarter and the split-adjusted two-year ahead dividend amount. I find the
interaction of interest enters with a statistically insignificant negative coefficient. I find similar
results when I conduct an identical procedure using earnings in place of dividends. Overall, I
conclude bundled dividend changes do not better forecast future earnings changes or future dividend changes, suggesting bundled changes and non-bundled changes are comparable.
3.5.2 Do smaller pre-announcement returns explain the increased reaction to bundled dividend changes?
If the market expects the firm to change its dividend, it may react less to the announcement of the change because the implications for future value have already been impounded into
returns. To investigate this possibility, in untabulated analysis, I compute average market-adjusted
returns for the period beginning sixty-one days before the dividend declaration and ending two
trading days before. Among firms that decrease their dividend, returns before the declaration are
slightly more negative for firms that bundle compared to those that do not. If dividend expectations are a function of pre-market returns, then holding all else constant firms that bundle would
have higher announcement window returns because more of the negative news has already been
impounded into returns. Pre-announcement returns are similar across bundled and non-bundled
observations for firms that increase their dividends and firms that keep the dividend constant.
Overall, it does not seem that the increased reaction to bundled dividend changes can be explained by the market better anticipating non-bundled dividend changes.
3.5.3 Does variation in dividend expectations explain the larger market reactions to bundled
dividend changes?
22
In columns (1) – (8) of Table II, I follow the prior literature and compute dividend news
using a random walk model.
.
However, for some dividend changes, the market will expect a dividend amount which
differs from the amount declared last quarter. Michayluk et al. (2011) demonstrate that firms
tend to increase their dividends in the same quarter each year. The return response to successive
dividend increases decreases with the length of the streak, suggesting that when the firm increased
the dividend in the same quarter the prior year market participants expect a dividend declaration
greater than the one declared the prior quarter. Prior research has dealt with this concern by either requiring the firm to pay the same dividend amount for two to four quarters (Koch and Sun
2004; Kothari et al. 2009) or eliminating small dividend increases from the sample of dividend
changes (Dhillon and Johnson 1994). In columns (9) – (10) I limit my sample to firms where dividend expectations are more likely equal to the prior dividend amount, although I note this concern is unlikely to affect my results as firms with successive dividend increases do not appear more
likely to bundle. In column (9), I include only dividend changes where the firm declares the same
dividend for a period of five quarters before changing the dividend.13 I find a slight increase in
the coefficient of interest. In column (10), I retain all dividend decreases but only increases larger
than 30%, under the intuition that large increases will be less expected and less likely to be a part
of a streak (Dhillon and Johnson 1994). I find similar results to those reported in columns (1) –
(9).
4. When do firms bundle?
13
This is similar to the requirement in the prior literature that firms maintain a stable dividend policy (Koch and Sun
2004; Kothari et al. 2009). However, the string of identical dividend declarations these papers require is insufficiently long to eliminate dividend declarations in which the firm changed the dividend the same quarter of the prior year.
23
4.1 What disclosures do firms bundle with earnings?
Firms incur production costs preparing disclosures and investors incur processing costs
incorporating disclosed information into their valuations (Fischman and Haggerty 1989), so firms
could bundle either to minimize production costs or processing costs. In this section, I present
descriptive evidence on the frequency of bundling across a number of types of disclosures. These
descriptive statistics provide some preliminary evidence on the importance of understanding the
practice of bundling.
I obtain all data from the Capital IQ key developments database. I define a disclosure as
bundled with earnings if the disclosure occurs within one calendar day of an earnings announcement. In Table VI, I present results for six disclosures: (1) buyback updates, (2) M&A transaction
announcements, (3) debt issuances, (4) managerial forecasts, (5) CEO/CFO changes and (6) Executive/Board Changes – Other. In column (1), I find the percentage of disclosures bundled varies from 77% for managerial forecasts to 6% for debt issuances. If firms produced disclosures
randomly during a quarter with sixty-three trading days, I would observe slightly less than five percent of disclosures bundled. For all six disclosures I find the frequency of bundling significantly
exceeds five percent.
The most bundled disclosure, managerial forecasts, is also a voluntary disclosure. As a result, the firm has complete discretion over the time they will release a managerial forecast. The
incremental cost of not bundling a managerial forecast would likely be as small as writing a second press release and remembering to release it a couple of days subsequent to the earnings announcement. Other disclosures are at least to some extent affected by regulation 8-K, which limits, but does not eliminate, the discretion firms have over the timing of disclosure.
I further investigate the extent to which production cost explanations affect the timing of
24
disclosure, by tabulating a histogram of dividend declarations by the number of trading days between the earnings announcement and the dividend declaration. Figure I indicates a large spike
in dividends declared around the earnings announcement. Dividend declarations also occur
more frequently than average the day before the earnings announcement as well as the day after
the earnings announcement. In Figure II (Figure III), I observe similar patterns for merger announcements (executive changes). If firms find earnings to be a useful input to decision making,
this would explain why firms make disclosure around earnings announcements. However, the
data indicates a spike at the exact date of the earnings announcement rather than a mound
around the time of the earnings announcement.
4.2 What disclosures do firms bundle with dividends?
In Table VI, column (2), I examine the disclosures firms release with the dividend declaration when the firm does not bundle the dividend declaration with earnings. I present results for
six disclosures: (1) buyback updates, (2) M&A transaction announcements, (3) debt issuances, (4)
managerial forecasts, (5) CEO/CFO changes and (6) Executive/Board Changes – Other. The
disclosure firms bundle most with the dividend declaration are updates concerning the firms repurchase program. As these disclosures typically reveal the shares the company has repurchased
in the past, the company could make the disclosures at any time during the quarter. So production costs would be unlikely to explain firms grouping buyback updates and dividend declarations
together. However, both buybacks and dividends relate to the company’s payout policy, so concerns for investor processing could explain firms systematically bundling these disclosures.
4.3 Do firms bundle significant news more frequently?
To differentiate an investor processing motivation for bundling from a cost motivation, I
test if firms bundle more significant news more frequently, when improved processing will have a
25
larger effect on price efficiency. To attempt to rule out production costs as an explanation for
increased bundling, I study how bundling varies with the significance of disclosed news in settings
where 1) the process of producing the disclosure remains similar as the significance of the news
changes and 2) the timing of the disclosure does not affect the operations of the firm (bundling
involves disclosing on a different day). Finally, I also include firm-fixed effects to control for disclosure precedent.
4.3.1 Do firms bundle significant dividend news more frequently?
Exchange regulations suggest (require) firms declare dividends a minimum of seventeen
(thirteen) days before they pay the dividend to investors. However, firms declare their dividends
an average of 41 days before the dividend declaration date providing most firms substantial flexibility to change their declaration date, without altering the payment date.14 I assume, firms produce more significant news when they change their dividend compared to when they maintain it.
To test the hypothesis firms bundle more significant news, I estimate model (4) by regressing a dummy variable set equal to one if the firm bundles the dividend on a dummy variable set
equal to one if the firm changes the dividend. I include all payment dates which occur between
twenty-three days and sixty-nine days after the dividend declaration date, so that the firm could
bundle the dividend declaration while retaining the same payment date.15 In all analysis I include
a firm-year fixed effect to control for variation in disclosure precedents which could be correlated
with the frequency of dividend changes (Graham et al. 2005; Einhorn and Ziv 2008).
14
The NYSE requires firms declare the dividend a minimum of ten days before the record date, which is the date on
which the dividend becomes payable to the shareholder of record. The NYSE further suggests (requires) the record
date occur seven (three) days before the payment date (http://nysemanual.nyse.com/lcm/). Ninety-five percent of
firms pay the dividend on the same date in consecutive years.
15
I choose twenty-three days and sixty-nine days because these are the tenth and ninetieth percentile difference between the declaration date and payment date. The assumption is that if the earnings announcement occurs within
this interval, the firm could have bundled the declaration.
26
∆
4
The hypothesis that firms disclose strategically to improve processing combined with the
evidence in section 3 that bundling improves investor processing predicts
will have a positive
coefficient estimate. In Table VII, column (1) I estimate that changing the dividend shifts the
probability of the firm bundling the dividend 4.1% (t=6.38). In column (2), I include a dummy
variable for declarations which decrease the dividend. The positive coefficient on this variable
suggests dividend decreases are slightly more likely to be bundled although the coefficient is not
statistically significant. In column (3), I demonstrate this result is robust to including a dummy
for whether the firm bundled its dividend declaration in the same quarter the previous year.
In column (4), I drop the firm-year fixed effect and run a horse race between disclosure
precedent (proxied by lagged bundling), the significance of the news (proxied by a dividend
change dummy) and the sign of the dividend news (the dividend decrease dummy). I find lagged
bundling explains thirteen times more of the variation in bundling than the significance of the
news. I find essentially no evidence that firms bundle dividend increases or decreases more frequently. In untabulated analysis, I find no evidence that firms bundle dividend news more frequently when earnings news has a similar or dissimilar sign as dividend news. I conclude that
firms bundle more significant news more frequently, but that disclosure precedent explains significantly more of the variation in bundling. I find the sign of the news explains almost none of the
variation in bundling, either unconditionally or conditional on the sign of earnings news.
4.3.2 Do firms bundle significant executive change news more frequently?
Firms typically announce executive changes before the new executive replaces the old.
This gives firms flexibility to vary the timing of executive changes without the variation having
economic consequences. When firms change the CEO or CFO, they create more significant
27
news than when they change a board member or other executive.
To test whether firms bundle more significant news I first select the sample of all executive
changes in the Capital IQ key developments database. In untabulated analysis, I regress bundle
on a dummy variable indicating the executive change was a CEO or CFO. I find firms bundle
CEO or CFO changes 2.8% more frequently (t=11.59). I find similar results after including firm
fixed effects.
4.4 Are there bundling clienteles?
Transient investors trade more frequently than non-transient investors (Bushee 2001). If
a portion of that trading frequency arises because transients are better able to process disclosures
without intermediation or better able to search for disclosure, the benefits of bundling will be
lower when a firm has a large transient investor base. Assuming firms bundle to decrease rational
inattention, firms with more transient investors will have less incentive to bundle.
To test whether firms with fewer transient investors bundle more frequently, I regress the
percentage of disclosures firms bundle on the percentage of shares held by transient investors. I
measure the percentage of transactions firms’ bundle, by measuring the percentage of total disclosures which the firm releases within one day of the earnings announcement. As my measure of
disclosures, I use the number of Capital IQ key developments. Capital IQ staff reviews firm disclosures and classifies significant disclosures as belonging to one of 97 different key developments,
providing a broad measure of disclosure.
In Table VIII, column (1), I report results of regressing the percentage of bundled disclosures on firm characteristics, size, book-to-market, return on assets and total assets. I rank all firm
characteristics from zero to one in each fiscal year, so the reported coefficient is the average difference in bundling between the lowest and highest firm for each characteristic. I find a statistically
28
significant negative coefficient on size, suggesting that larger firms bundle less frequently. In section 3.3 I find that larger investor processing benefits exist for smaller firms, suggesting these
firms should also select to bundle more frequently. I also find a statistically significant positive
coefficient for return on assets. This suggests more profitable firms choose to bundle more frequently because they would like for their other disclosures to be interpreted alongside their robust
earnings reports.
In column (2), I include the percentage of shares held by institutional investors classified
by Bushee (2001) as transient investors, quasi-indexers and dedicated investors. I find that firms
with a high transient investor base bundle significantly less frequently. In column (3) I demonstrate the relationship between transient investor base and bundling is robust to the inclusion of
firm and year fixed effects.
In untabulated analysis, I regress the change in bundling on the change in the percentage
of transient investors. I compute the change in transient investors as the percentage of transient
investors at the 13-F filing date closest to the end of the fiscal year minus the percentage of transient investors at the 13-F filing date one year prior. I compute the change in percentage bundling
as the difference between bundling for the current fiscal year minus bundling for the fiscal year
prior. I find a significant negative coefficient (t=8.29), which indicates a 10% increase in the
transient investor base translates into a 2.7% decrease in bundling. The results from the changes
analysis reduce concerns an omitted variable causes both variation in bundling and the transient
investor base.
4.5 Does bundling affect the cost of capital?
I speculate that one channel through which firms may benefit from bundling is by lowering their cost of capital. I proxy for cost of capital using the bid-ask spread (Amihud and
29
Mendehlson 1986; Leuz and Verrecchia 2000). A challenge in testing how bundling affects bidask spreads is that bundling involves combining other disclosures with the earnings announcement. As earnings announcements affect both spreads and liquidity, this will confound attempts
to test the effects of bundling using changes in spreads (Lee et al. 1993).
As a result, to examine the linkage between bundling and cost of capital, I examine
whether firms who bundle have lower average bid-ask spreads. Bundling firms having lower average bid-ask spreads would be consistent with either bundling lowering bid-ask spreads or with
firms who bundle making other disclosure choices to lower informational rents.
To test whether firms that bundle disclosures have lower bid-ask spreads, I regress the average closing bid-ask spread during the fiscal year on the variable of interest, the number of Capital IQ key developments which the firm releases within one day of the earnings announcement.
To control for the level of disclosure, I also include the total number of key developments in all
regressions. Under the hypothesis that bundling improves investor processing, I would expect the
number of bundled disclosures to have an effect on bid-ask spreads even after controlling for the
level of disclosure.
In column (2), Table IX I find that the number of bundled disclosures has a significantly
negative effect on bid-ask spreads after controlling for the number of disclosures. In column (3), I
demonstrate that this result is robust to including controls for firm characteristics and industry
fixed-effects. In untabulated analysis, I find that firms who bundle dividends have lower bid-ask
spreads, but that the average effect is much smaller than the estimated effect considering all disclosures on the Capital IQ key developments database.
5. Conclusion
In this study I examine the benefits of bundling information releases with the earnings
30
announcement. I document that bundling increases immediate reactions and reduces drift. I
also find managers more frequently bundle more significant news, consistent with managers attempting to improve investor processing of information.
Although this study focuses on the benefits to bundling disclosure, if delaying disclosure
allows investors to trade profitably on their private information, bundling may also create costs. I
leave it to future research to investigate these costs.
31
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36
Appendix A: Variable Definitions
This appendix describes each variable used in my study. All data are from CRSP and Thomson insider’s
for the years 1994 – 2011.
Variable
Bundle
Bundlet-1
Bundlet-4
Percentage change
(%ΔDiv)
Dividend change
scaled by price
(ΔDiv/P)
Description
Dummy variable set equal to one if the dividend declaration occurs within one calendar day of the earnings
announcement
Dummy variable set equal to one if the prior quarter’s
dividend declaration occurs within one calendar day of
an earnings announcement
Dummy variable set equal to one if the prior year’s dividend declaration occurs within one calendar day of an
earnings announcement. I require that this declaration
occur no fewer than 350 days before the current quarter’s declaration and no more than 380 days before.
This quarter's dividend amount minus last quarter's
dividend amount divided by last quarter's dividend
amount. I set this value to two if percentage change
exceeds two.
Change in dividend divided by the price from seven
days before the dividend declaration.
Prior dividend yield
(Divt-1/P)
The dividend amount from last quarter divided by the
price seven days before the dividend declaration
Dividend increase
Dummy variable set equal to one when the firm declares a dividend greater than the prior declared
amount.
Dummy variable set equal to one when the firm declares a dividend less than the prior declared amount.
Dummy variable set equal to one if the firm changed
the dividend.
Dummy variable set equal to one if the firm changed
the dividend in the prior year
Dividend decrease
Dividend change
Prior year dividend
change
(Dividend changet-4)
Market-adjusted returns
Seasonal-adjusted returns
Returns from the trading day before the dividend declaration date until the trading date after minus valueweighted market returns over the same period.
First, I calculate the earnings surprise by subtracting
reported earnings from the earnings reported in the
same quarter one year ago. Second, I pool all earnings
announcements on I/B/E/S and regress marketadjusted returns from the earnings announcement window on the sign of the earnings surprise, the winsorized
value of the earnings surprise scaled by price and the
37
Formula

Divt  Divt 1
Divt 1

Divt  Divt 1
P

Divt 1
P
 I ( Divt  Divt 1 )
 I ( Divt  Divt 1 )
 I ( Divt  Divt 1 )
 I ( Divt  4  Divt  5 )
 Ri  RM
Forecast-adjusted returns
Announcement volume
winsorized value of the earnings surprise scaled by price
multiplied by the absolute value of the earnings surprise
scaled by price. I then take the residual for all bundled
announcements. For non-bundled announcements, I
use simple market-adjusted returns.
First, I calculate the earnings surprise by subtracting
reported earnings from the average analyst forecast issued after the prior dividend declaration. Second, I
pool all earnings announcements on I/B/E/S and regress market-adjusted returns from the earnings announcement window on the sign of the earnings surprise, the winsorized value of the earnings surprise
scaled by price and the winsorized value of the earnings
surprise scaled by price multiplied by the absolute value
of the earnings surprise scaled by price. I then take the
residual for all bundled announcements. For nonbundled announcements, I use simple market-adjusted
returns.
I include all dividend declarations where an analyst
publishes at least one forecast of earnings for the earnings announcement closest to the dividend declaration.
I require the analyst issue this forecast after the previous
earnings announcement. I delete all observations
(bundled or not bundled) without analyst following.
Announcement volume is the volume of trade occuring
during the three day announcement window divided by
the sum of trade during the dividend announcement
window and the same period one week earlier.
38

Vol[ 1,1]
sum (Vol[ 1,1] , Vol[ 8, 6] )
Table I: Descriptive Statistics
Panel A: Characteristics of firms that bundle and do not bundle. I define a dividend declaration as bundled if it is released
within one calendar day of an earnings announcement. To compute firm characteristics, I rank all firms on the annual
COMPUSTAT file from zero to one on the basis of equity value, total assets, book-to-market and return on assets
(EBIT/TA). I use the rank from the fiscal year ending closest to the dividend declaration.
Bundle
No
Yes
Percentage of
Observations
77.4%
22.6%
Equity Value
71.6%
71.3%
Total Assets
76.0%
75.1%
Book-toMarket
54.3%
54.5%
Return on
Assets
61.8%
62.9%
Percentage
Dividend Yield
0.7564%
0.7496%
Panel B: Characteristics of dividend declarations presented separately for firms that bundle and do not bundle.
(1)
(2)
(3)
(4)
(5)
(6)
Change
MarketSeasonalDividend
Percentage
Divided by
Percentage
Adjusted
Adjusted
Announcement
Bundle
Change
Change
Price
Dividend Yield
Returns
Returns
Volume
No
Yes
No
Yes
No
Yes
Decrease
Decrease
No Change
No Change
Increase
Increase
-39.2%
-43.1%
0.0%
0.0%
18.5%
19.7%
-0.7%
-0.9%
0.0%
0.0%
0.1%
0.1%
1.7%
1.9%
0.7%
0.7%
0.8%
0.7%
39
-1.0%
-2.5%
0.1%
0.2%
0.5%
0.8%
-1.0%
-2.1%
0.1%
0.1%
0.5%
0.5%
53.0%
58.9%
50.6%
58.2%
51.8%
58.4%
Table II: Effect of bundling on announcement window returns - Results of regressing dividend declaration returns on a dummy variable indicating the firm bundled its dividend
declaration with an earnings announcement ("bundle"), the percentage dividend change as well as the variable of interest, bundle interacted with the percentage dividend change. All
variable defininations can be found in Appendix A.
Reduced Form: Column (1) includes all dividend declarations where the firm declares the dividend at least fifty days after the prior dividend declaration but no more than 130
days after. Column (2) uses the same sample, but uses seasonally adjusted returns as the dependent variable. Column (3) includes firm-fixed effects interacted with the sign of the
dividend change. Column (4) includes all observations where at least one analyst issue a forecast within ninety days of the most recent earnings announcement.
First Stage: Columns (5) - (6) present first stage results of regressing the two instruments, Bundlet-1 and Bundlet-1 *%ΔDiv, as well as all other exogenous variables on each of the
two endogenous variables, Bundlet and Bundlet *%ΔDiv.
Second Stage: Columns (7) - (10) report IV estimates. Column (7) includes all dividend declarations where the firm declares the dividend at least fifty days after the prior
dividend declaration but no more than 130 days after. Column (8) includes all observations where at least one analyst issue a forecast within ninety days of the most recent earnings
announcement. Column (9) includes all dividend changes in which the firm previously paid the same dividend for a period of five quarters. Column (10) includes all dividend
decreases and all increases larger than 30%.
(1)
(2)
(3)
(4)
(7)
(8)
(5)
(6)
(9)
(10)
Sample
Returns
Bundlet
%ΔDiv
Bundlet *%ΔDiv
Reduced Form
market
seasonal
First Stage
seasonal
forecast
Bundlet
ΔD/P
ΔDt-1 /P
Firm-Fixed Effects
Firm-Fixed Effect*Sign of Change
N
R-squared
forecast
seasonal
seasonal
0.2%
0.0%
0.0%
-0.1%
-0.1%
-0.2%
-0.1%
-0.1%
(-0.48)
(0.20)
(-1.88)
(-1.97)
(-1.87)
(-0.10)
(-0.98)
0.4%
0.4%
0.8%
0.3%
0.4%
0.2%
-1.7%
0.0%
(2.10)
(2.52)
(3.52)
(1.53)
(2.36)
(0.98)
(-0.38)
(0.00)
1.7%
1.5%
1.4%
1.7%
2.2%
2.1%
2.8%
2.4%
(4.90)
(4.27)
(3.34)
(3.08)
(4.00)
(2.32)
(2.09)
(3.69)
56.0%
0.0%
(61.16)
(-0.32)
Bundlet-1*%ΔDiv
Div Increase
seasonal
(2.38)
Bundlet-1
Controls
Div Decrease
Second Stage
Bundlet-1*%ΔDiv
0.7%
57.3%
(0.30)
(17.47)
-1.1%
-1.0%
--
-0.3%
2.9%
-0.1%
-0.9%
-0.3%
-1.7%
-1.3%
(-6.81)
(-6.00)
--
(-1.74)
(4.67)
(-0.80)
(-5.74)
(-1.67)
(-4.68)
(-4.68)
---
--52.9%
0.2%
0.2%
--
1.5%
2.6%
0.0%
0.2%
0.2%
(4.36)
(3.83)
--
(2.70)
(2.63)
(0.07)
(4.63)
(2.71)
42.2%
45.3%
6.8%
54.4%
-123.3%
-8.3%
37.3%
54.5%
-1.7%
(2.77)
(2.83)
(0.41)
(2.33)
(-3.23)
(-0.26)
(2.92)
(2.34)
(-0.38)
(3.63)
40.7%
44.2%
58.2%
6.1%
-51.1%
-10.4%
27.8%
6.3%
-2.1%
27.0%
(4.11)
(4.30)
(5.89)
(0.94)
(-1.96)
(-1.89)
(6.46)
(0.96)
(-0.13)
(2.51)
YES
YES
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
YES
NO
NO
NO
NO
NO
NO
NO
95,335
0.058
95,335
0.059
95,335
0.135
48,422
0.004
95,335
0.335
95,335
0.487
95,335
0.008
48,422
0.042
2,816
0.046
4,866
0.046
Reported below the coefficients are t-statistics clustered at the firm level.
40
Table III: Incremental effect of firm characteristics on announcement window returns
I include all dividend declarations where the firm declares the dividend at least fifty days after the prior
dividend declaration but no more than 130 days after where the firm also has information on size
available from COMPUSTAT. All variable definitions can be found in appendix A.
MVE is the market value of equity as of the end of the most recent fiscal year ranked for all firms in the
sample by year of the dividend declaration from zero to one. #Analysts is the number of analysts
issuing a forecast within ninety days of the announcement date, ranked by year of the dividend
declaration from zero to one. Regressions with control variables include dividend increase, dividend
decrease, dividend change divided by price and prior dividend yield.
(1)
(2)
Adjusted returns
Seasonal
%ΔDiv
%ΔDiv*Bundle
%ΔDiv*Size
1.4%
2.3%
(4.31)
(3.11)
2.7%
1.0%
(3.65)
(3.31)
-1.3%
(-2.87)
%ΔDiv*Size*Bundle
-2.5%
(-2.08)
%ΔDiv*#Analysts
-0.6%
(-1.34)
%ΔDiv*#Analysts*Bundle
-1.6%
Control Variables
YES
(-1.36)
YES
94,449
0.008
94,449
0.008
N
R-squared
Reported below the coefficients are t-statistics clustered at the firm level.
41
Table IV: Immediate and subsequent reactions to Seasoned Equity Offerings (SEOs) and dividend initiations:
All announcement window returns are seasonally adjusted and long-horizon returns are adjusted for the value-weighted portfolio.
SEO sample -- I obtain the registration dates of all follow-on equity offerings from SDC Global new issues database. I select all
follow-on offerings for U.S. public firms listed on the NYSE, AMEX or Nasdaq in the period 1994 - 2011. Regressions with
control variables include year fixed effects, fixed effects for the market place of the offering, firm characteristics, the size of the
offering relative to shares outstanding as well as a dummy variable indicating the firm issued the securities on the day on which
it
registered
the offering. The marketplace of the offering includes U.S. Public, U.S. Private, Euro Private, Euro Public, Shelfregistered and withdrawn. Regressions with firm characteristics include the firm's rank by year in the population of firms on
COMPUSTAT by size, book-to-market, total assets and return on assets ranked by year.
Dividend Initiations -- I select all firms who declare a quarterly dividend who have not declared a quarterly dividend in the
previous two years. I also require data from Compustat to compute firm characteristics and earnings data from I/B/E/S to
compute adjusted returns. Regressions with control variables include year fixed effects, firm characteristics and dividend yield.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
SEOs
Dependent Variable
Intercept
Bundle
Control Variables
N
R-squared
RET[-1,1]
Dividend Initiations
RET[-1,1]
RET[2,61]
RET[2,61]
-1.8%
(-18.19)
---
0.7%
(2.47)
---
1.0%
(5.66)
---
2.3%
(4.85)
---
-1.5%
(-3.24)
-1.2%
(-2.66)
2.9%
(2.40)
3.0%
(2.55)
1.1%
(1.88)
1.4%
(2.27)
-1.7%
(-1.93)
-1.8%
(-2.03)
NO
YES
NO
YES
NO
YES
NO
YES
7,891
0.002
7,891
0.040
7,891
0.001
7,891
0.030
1,097
0.005
1,097
0.061
1,097
0.003
1,097
0.051
Reported below the coefficients are t-statistics clustered at the firm level.
42
Table V: Effect of bundling on drift - Results of regressing returns after the declaration window on a dummy
variable indicating the firm bundled its dividend declaration with an earnings announcement ("bundle"), the
percentage dividend change as well as the variable of interest, bundle interacted with the percentage dividend
change. All variable definitions can be found in Appendix A.
In column (1) the dependent variable is cumulative abnormal returns beginning the second trading day after the
dividend declaration and ending 61 calendar days after the dividend declaration. In column (2) the dependent
variable is announcement window returns at the time of the next dividend declaration. In column (3) the dependent
variable is the sum of announcement window returns for the next four dividend declarations.
(1)
(2)
Dependent Variable
(3)
CAR[2,61] Ret(Divt+1) Σ1-4 Ret(Divt+i)
Bundle
%ΔDiv
Bundle*%ΔDiv
Div Decrease
Div Increase
Firm Fixed-Effects
N
R-squared
Reported below the coefficients are t-statistics clustered at the firm level.
43
0.1%
0.0%
0.1%
(0.59)
(0.31)
(0.92)
0.6%
0.0%
0.7%
(1.32)
(-0.17)
(2.63)
-0.3%
-0.5%
-0.9%
(-0.32)
(-1.57)
(-1.70)
-0.8%
0.1%
0.7%
(-1.94)
(0.46)
(2.25)
0.4%
0.0%
-0.1%
(2.83)
(0.25)
(-1.86)
YES
YES
YES
95,333
0.048
92,645
0.052
84,968
0.057
Table VI: Frequency of bundling - I present the frequency of bundling for six disclosures: (1)
buyback updates, (2) M&A transaction announcements, (3) debt issuances, (4) managerial
forecasts, (5) CEO/CFO changes and (6) Executive/Board Changes – Other. I obtain all data
from the Capital IQ key developments database. I include observations from years 2001 2011. I define a bundled disclosure as occuring within one day of an earnings accouncement
(column (1)) or within one day of a dividend declaration (column (2)). In column (1), I include
all key developments which occur within 60 days of an earnings announcement. In column (2),
I include all key developments which occur within 60 days of a dividend declaration and which
do not occur within one day of an earnings announcement (not bundled with earnings).
(1)
(2)
Disclosure
Buyback Updates
% Bundled with earnings
% Bundled with dividends
22.3%
18.2%
M&A Transaction Announcements
8.8%
5.2%
Debt Issuances
6.4%
5.5%
Managerial Forecasts
76.9%
13.0%
CEO/CFO Changes
10.4%
12.7%
7.4%
12.9%
Executive/Board Changes
44
Table VII: Estimates of the effect of news on bundling - Results of regressing a
dummy variable indicating the firm bundled the dividend declaration with the earnings
announcement on a dividend change dummy, a dividend decrease dummy and a dummy
indicating the firm bundled the dividend declaration the same quarter last year.
I include all dividend declarations where the payment date occurs between twenty-three
and sixty-nine days after the earnings announcement. This criteria ensures the firm could
have bundled the dividend declaration while maintaining the same payment date.
(1)
(2)
(3)
(4)
Dependent variable
Dividend Change
Bundlet
4.1%
(6.38)
Dividend Decrease
3.7%
(5.52)
3.9%
(6.08)
2.2%
(1.74)
Bundlet-4
4.4%
(6.31)
0.0%
(0.07)
18.9%
(18.81)
58.5%
(67.10)
Firm-Year Fixed Effects
YES
YES
YES
NO
N
R-squared
55,837
0.52
55,837
0.52
49,391
0.54
49,391
0.54
Reported below the coefficients are t-statistics clustered at the firm level.
45
Table VIII: Estimates of the effect of bundling on the investor base Results of regressing the percentage of bundled disclosures on the number of
transient investors and control variables. I calculate the % of bundled disclosures
by summing the # of Capital IQ key developments in the calendar year which
occur within one day of an earnings announcement and dividing this sum by the
total number of Capital IQ key developments. I calculate the percentage of
shares held by transient investors by summing the shares held by investors
classified by Bushee (2001) as transients and dividing the sum by total shares. I
calculate the percentage of shares held by dedicated investors and quasi-indexers
similarly. Regressions with firm characteristics include size, book-to-market, total
assets and return on assets ranked by year for all firms from zero to one.
(1)
(2)
(3)
Dependent variable
%Bundled disclsoures
%Transient Investors
%Dedicated Investors
% Quasi-Indexers
Size
Book-to-market
Return on assets
Total assets
-15.5%
(-11.46)
2.6%
(4.33)
11.6%
(21.00)
-17.6%
-11.6%
(-4.94)
(-2.84)
6.2%
8.9%
(2.07)
(2.87)
-9.8%
-12.6%
(-1.58)
(-2.03)
-15.4%
-8.6%
(-11.50)
(-6.43)
2.5%
1.8%
(4.13)
(3.07)
11.6%
9.5%
(20.85)
(16.90)
5.8%
(4.61)
5.7%
5.7%
(4.51)
(4.51)
Industry Effects
NO
NO
YES
Year Effects
NO
NO
YES
19,229
0.06
19,229
0.07
19,229
0.13
N
R-squared
Reported below the coefficients are t-statistics clustered at the firm level.
46
Table IX: Estimates of the effect of bundling on bid-ask spread - Results of
regressing the average bid-ask spread on the number of bundled disclosures and
control variables. I calculate the bid-ask spread as the average closing bid-ask
spread scaled by price over the 365 days of the calendar year, where all average
spreads are ranked from zero to one. I calculate the # of bundled disclosures by
summing the # of Capital IQ key developments in the calendar year which occur
within one day of an earnings announcement. I define # disclosures by summing
the number of key developments on the Capital IQ key developments database in
the calendar year. Regressions with firm characteristics include size, book-tomarket, total assets, return on assets and price ranked by year for all firms from
zero to one.
(1)
Dependent variable
# Disclosures
(2)
(3)
Ranked Bid-Ask Spread
-0.3%
-0.2%
0.0%
(11.68)
(9.40)
(0.88)
-2.2%
-0.4%
(20.13)
(11.64)
# Bundled disclosures
Industry Effects
NO
NO
YES
Firm Characteristics
NO
NO
YES
33,291
0.16
33,291
0.21
33,291
0.87
N
R-squared
Reported below the coefficients are t-statistics clustered at the firm level.
47
Figure I: Histogram of the percentage of dividend declarations by the number of trading days
to the nearest earnings announcement. Negative (Positive) twenty relates to a dividend declaration twenty days before (after) the nearest earnings announcement. Zero relates to a dividend
declaration released the same day as an earnings announcement. I include all dividend declarations which occur within 30 trading days of an earnings announcement. I obtain the dates of
dividend declarations from the CRSP events database, trading days from CRSP and the dates of
earnings announcements from I/B/E/S (1994-2011).
48
Figure II: Histogram of the percentage of merger announcements by the number of trading
days to the nearest earnings announcement. Negative (Positive) twenty relates to a merger announcement twenty days before (after) the nearest earnings announcement. Zero relates to a
merger announcement released the same day as an earnings announcement. I include all merger
announcements which occur within 30 trading days of an earnings announcement. I obtain the
dates of earnings announcements and merger announcements from the Capital IQ key developments database (2001-2011).
Figure III: Histogram of the percentage of CEO/CFO announcements by the number of trading days to the nearest earnings announcement. Negative (Positive) twenty relates to a
CEO/CFO announcement twenty days before (after) the nearest earnings announcement. Zero
relates to a CEO/CFO announcement released the same day as an earnings announcement. I
include all CEO/CFO announcements which occur within 30 trading days of an earnings announcement. I obtain the dates of earnings announcements and CEO/CFO announcements from
the Capital IQ key developments database (2001-2011).
49