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Announcement 1: On 1/16/2003, Microsoft was the first major technology (internet/computer) firm to announce the initiation of a regular dividend. The announcement of a dividend increase usually receives a positive reaction in the marketplace, as it communicates increasingly stable income to investors. Likewise, the announcement of a dividend decrease usually results in a significant negative return on the day of the announcement. Dividend initiations, however, generally have a mixed response. While they are actually dividend increases (from $0 to something), they can also signal to the market that the firm is entering into a new stage in its life cycle, going from a growth firm to, hopefully, a cash cow. Investors that like to invest in growth firms don’t always respond positively to this change.

For this first announcement, determine the Abnormal Returns for Microsoft (Ticker: MSFT) surrounding the announcement date above using a single factor model, using the S&P 500 (Ticker ^GSPC) as the market proxy, and a two-factor model, using the iShares S&P North American Technology Sector Index Fund (Ticker: IGM) for the industry proxy.

Announcement Date: January 16, 2003

Event Period: January 14, 2003 through January 21, 2003

Estimation Period: January 15, 2002 through January 13, 2003

Announcement 2: On 7/20/2004, Microsoft announced a special dividend of $3 per share, which amounted to approximately $45 Billion in cash being distributed to stockholders. This further communicated the move of Microsoft to being a “cash cow” as they were signaling that they didn’t have opportunities in which to invest that cash.

For this second announcement, determine the Abnormal Returns for Microsoft (Ticker: MSFT) surrounding the announcement date above using a single factor model, using the S&P 500 (Ticker ^GSPC) as the market proxy, and a two-factor model, using the iShares S&P North American Technology Sector Index Fund (Ticker: IGM) for the industry proxy.

Announcement Date: July 20, 2004

Event Period: July 16, 2004 through July 23, 2004

Estimation Period: July 18, 2003 through January July 15, 2004