Shareholders Reaction to Dividend Announcement on Stock Prices

Real estate investment trust (REIT) dividend policies and dividend announcement effects during the 2008–2009 liquidity crisis are examined. Multinomial logit results indicate that REITs with higher market leverage or lower market-to-book ratios are more likely to cut dividends, suspend dividends or pay elective stock dividends. These results imply that mitigating going-concern risk is an important motive for REITs adjusting dividend policies during the crisis and support dividend catering theory where investor demand for dividends impacts corporate dividend policies. This was examined by William G. Hardin (2012) in his paper of REIT Dividend Policies and Dividend Announcement Effects. Moreover, REITs that cut or suspend dividends experience positive cumulative abnormal returns during the post-announcement period after controlling for the potential influence from simultaneous funds from operation announcements. The positive market response over the post-announcement period supports the notion that dividend decisions convey information to investors and is also consistent with the broad catering theory of dividend policy.

Apostolos Dasas (2009) investigated in his paper the market reation to cash dividend announcements for the period 2000-2004 employing data from Athens Stock Exchange. The paper examines both the stock price and trading volume response to dividend distribution announcements. Despite this neutralized information and tax environment, it was documented significant market reaction on dividend change announcements, lending support for the “information content of dividends hypothesis”.

THE IMPACT OF DIVIDEND ANNOUNCEMENTS: RECONCILIATION OF SRI LANKAN EVIDENCE OVER LAST TWO DECADES- D. B. P. H. Dissa Bandara,, K. D. I. Perera (2011) vol.8, Eighth International conference on business management this paper examined the initial work of Bandara (2001) and compare with recent work of Bandara and Perera (2010) in order to understand the possible changes with regard to market response to dividend announcements. The time period of the study is from 1993 to 2008 to study stock price reaction to dividend announcements and to measure informational content of dividend announcements in Sri Lanka. The results confirm significant difference between the Sri Lankan market and other developed markets. significant abnormal returns around dividend announcement day. The results show significant characteristics between the two periods. Both overall samples support informational content of dividend hypothesis. This study confirms that the significant anticipatory response to dividend announcements one week before the event and price adjustment process have been enhanced as per the latest study. Further, delayed market response is also significant and it shows the behavior of the market followers due to information asymmetry or lack of access to enjoy with new information. Further delayed response on forgone response would be due to lack of capital market education; or in other words financial literacy. Finally, both studies confirm that overall samples are not consistent with the semi-strong form of the Efficient Market Hypothesis (EMH).

Reaction of Stock Prices to Dividend Announcements and Market Efficiency in Pakistan (2010)

This study tests the semi-strong form of market efficiency by investigating the reaction of stock prices to dividend announcements. It analyzes cash, stock, and simultaneous cash and stock dividend announcements of 79 companies listed on the Karachi Stock Exchange from July 2004 to June 2007. Abnormal returns from the market model are evaluated for statistical significance using the t-test and Wilcoxon Signed Rank Test. The findings suggest negligible abnormal returns for cash dividend announcements. However, the average abnormal and cumulative average abnormal returns for stock and simultaneous cash and stock dividend announcements are mostly positive and statistically significant.

This study is based on samples of dividend paying companies listed on National Stock Exchange, exhibited that investors do not gain value from dividend announcement. Indeed, shareholders earned little value over a period of 15 days prior to the dividend announcement through to 15 days after the announcement. The lower return may be partially compensated because of the current dividend yield. This study also indicates that payment of dividend does not convey any useful information to the investing community, which needs to be further reconnoitered.

IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS’ VALUE: A STUDY OF INDIAN FIRMS

This study has tested empirically the agency cost theory, Lintner model, dividend signaling and smoothing effects using a framework of various econometric models. FMCG companies score high on dividend stability and consistency as Lagged dividend and PAT are important factors governing dividend distribution. The quality of cash flows, which is measure of liquidity of the firm and firm size are found be inconsequential in determining the dividend payout. The opportunities for future growth and expansion are found to be negatively related to dividend payout ratio. Larger is the growth and investment opportunity available to the firm, lesser is the incentive to pay dividends by retaining larger proportion of profits. The regression results also disclose negative and Significant relationship with Retained earnings and Capital Expenditure during the current year which is in conformity with the existing literature. A company which prefers retention of profits for financing the capital expenditure from internal resources distributes fewer dividends compared to a firm which finances the investment expenditure from external sources. Also larger the retention of profits by a company lesser is the dividend distributed. (Pecking order hypothesis).

The results are robust in that the conclusions are the same for both an analysis of the raw Abnormal returns data, and for the FGLS regressions which control for possible confounding factors. These results are consistent with the information content of dividends hypothesis, and have important implications for event studies where clustering is problematic. The results of this study support initial hypothesis that investor expectation, and therefore the amount of the information conveyed by dividend change announcements, varies with respect to market phase. The differences between market phases are found to be significant for both dividend increase announcements (good news) and dividend decrease announcements (bad news). Additionally, the conclusions are the same for both the statistical tests and cross-sectional regressions.

The confounding influence of market phase on dividend change announcements has obvious implications for research design in dividend studies, especially where clustering is problematic. It is also reasonable to expect that the influence of market phase extends to other types of “events” which are interpreted as good news or bad news by the market.

This study examines the information content of dividend policy through the share price reaction on the Tunisian stock exchange from 1998-2001. In particular this study was conducted to identify the market reaction at the release of news from the ordinary general assembly, which is assessed through the observed return, the systematic risk, the volatility and the abnormal return. The event study findings strongly support the dividend signaling hypothesis in explaining the positive price reactions to an increase in the dividend payment. The stock prices will in the direction of dividend change.

Real estate investment trust (REIT) dividend policies and dividend announcement effects during the 2008–2009 liquidity crisis are examined. Multinomial logit results indicate that REITs with higher market leverage or lower market-to-book ratios are more likely to cut dividends, suspend dividends or pay elective stock dividends. These results imply that mitigating going-concern risk is an important motive for REITs adjusting dividend policies during the crisis and support dividend catering theory where investor demand for dividends impacts corporate dividend policies. This was examined by William G. Hardin(2012) in his paper of REIT Dividend Policies and Dividend Announcement Effects. Moreover, REITs that cut or suspend dividends experience positive cumulative abnormal returns during the post-announcement period after controlling for the potential influence from simultaneous funds from operation announcements. The positive market response over the post-announcement period supports the notion that dividend decisions convey information to investors and is also consistent with the broad catering theory of dividend policy.

Apostolos Dasas(2009) investigated in his paper the market reation to cash dividend announcements for the period 2000-2004 employing data from Athens Stock Exchange. The paper examines both the stock price and trading volume response to dividend distribution announcements. Despite this neutralized information and tax environment, it was documented significant market reaction on dividend change announcements, lending support for the “information content of dividends hypothesis”.

THE IMPACT OF DIVIDEND ANNOUNCEMENTS: RECONCILIATION OF SRI LANKAN EVIDENCE OVER LAST TWO DECADES- D. B. P. H. Dissa Bandara,, K. D. I. Perera (2011) vol.8, Eighth International conference on business management this paper examined the initial work of Bandara (2001) and compare with recent work of Bandara and Perera (2010) in order to understand the possible changes with regard to market response to dividend announcements. The time period of the study is from 1993 to 2008 to study stock price reaction to dividend announcements and to measure informational content of dividend announcements in Sri Lanka. The results confirm significant difference between the Sri Lankan market and other developed markets. significant abnormal returns around dividend announcement day. The results show significant characteristics between the two periods. Both overall samples support informational content of dividend hypothesis. This study confirms that the significant anticipatory response to dividend announcements one week before the event and price adjustment process have been enhanced as per the latest study. Further, delayed market response is also significant and it shows the behavior of the market followers due to information asymmetry or lack of access to enjoy with new information. Further delayed response on forgone response would be due to lack of capital market education; or in other words financial literacy. Finally, both studies confirm that overall samples are not consistent with the semi-strong form of the Efficient Market Hypothesis (EMH).

Reaction of Stock Prices to Dividend Announcements and Market Efficiency in Pakistan (2010)

This study tests the semi-strong form of market efficiency by investigating the reaction of stock prices to dividend announcements. It analyzes cash, stock, and simultaneous cash and stock dividend announcements of 79 companies listed on the Karachi Stock Exchange from July 2004 to June 2007. Abnormal returns from the market model are evaluated for statistical significance using the t-test and Wilcoxon Signed Rank Test. The findings suggest negligible abnormal returns for cash dividend announcements. However, the average abnormal and cumulative average abnormal returns for stock and simultaneous cash and stock dividend announcements are mostly positive and statistically significant.