Abstract
Signaling theory assumes that it is necessary to signal investors to how they perceive company’s prospects. One of them is dividend announcements. The announcement of dividends is predicted to be a signal for investors in the investment decision making process. This study aims to determine and analyze the effect of dividend announcements, both increases and decreases in dividends, on stock returns. This study is intended to find empirical evidence about market reactions based on signaling theory in Indonesia Stock Exchange on the period 2017. The analysis of this study uses the event study method and hypothesis testing carried out using different test paired sample t-test. The results of this study prove that the market reacts to the announcement of dividends. The market reaction is indicated by the value of abnormal returns, namely abnormal returns in the positive direction when the announcement of dividend increased and abnormal returns in the negative direction when the announcement of dividend decreased. The value of abnormal returns in a positive direction reflects the company’s performance in good condition, and vice versa. This result indicates that dividend announcements are a signal and contain information relevant to investors in the investment decision making process.
Highlights
Dividend announcement is a policy where the management of the company will distribute a number of cash or cash equivalents to shareholders derived from company profits as a result of the company’s fundamental performance to be distributed as dividends after deducting retained earnings
The market reaction is indicated by the value of abnormal returns, namely abnormal returns in the positive direction when the announcement of dividend increased and abnormal returns in the negative direction when the announcement of dividend decreased
0.000 Significant prove, the hypothesis which states that the an- er there was an information leak before the announcement of dividend increase has an effect nouncement was officially published, indicating on acceptable stock returns (H1 accepted)
Summary
Dividend announcement is a policy where the management of the company will distribute a number of cash or cash equivalents to shareholders derived from company profits as a result of the company’s fundamental performance to be distributed as dividends after deducting retained earnings. Announcement of dividends can be fixed or changeable These changes can be in the form of increases or decreases (Abdullah et al, 2002). Changes in the amount of dividends paid, both increases and decreases, are seen as signals where management expects future profits to change in the same direction. Increasing the amount of dividends paid is seen as a positive signal that encourages investors to offer higher stock prices while expecting a higher rate of return, and vice versa
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