Abstract
The corporate finance literature for market reaction to dividend announcements reports mixed results
Highlights
Investors are always interested in optimizing their earnings and continuous search of optimal investments on the basis of technical and signalled information
The second group includes the positive cumulative abnormal return (CAR) of all companies and we report it as positive CAR "P"
The results reported in table 4.1 show that the variable earnings volatility EVOL is negative and statistically significant at 5% percent level for CAR1 F only, which indicates that the firm whose earnings volatility is lower conveys the maximum information to investors about the future earnings and dividends of firms which as a result increase the stock prices and the returns
Summary
Investors are always interested in optimizing their earnings and continuous search of optimal investments on the basis of technical and signalled information. The concept which explains the relationship of stock price and information content of dividend is given by the dividend signalling theory proposed by Miller and Rock (1985), free cash flow theory (Bhattacharya,1979,1980; John & William,1985; Miller & Rock, 1985), free cash flow hypothesis given by Jensen (1986) and Agency Cost theory forwarded by Easterbrook (1984). The discussion in these theories mainly states that changes in firms dividend policy significantly affects the share prices of the respective firm.
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