Stock Market Reactions to Dividend Announcements: Evidence from Poland

Abstract

The paper investigates the market reaction to announcements of dividend changes on the Warsaw Stock Exchange. The research was conducted on a population of non-financial companies paying regular dividends over the period 2014–2016. The sample of dividend announcements (in total 186 observations: 106 dividend increases, 43 dividend decreases and 37 no changes in dividend value) was divided into three subsamples: dividend increases, decreases, and no change. According to the dividend signalling theory, we hypothesize that the market reacts positively to announcements of dividend increases, negatively to dividend decreases, while there is no market reaction to the announcements of stable dividends. Using daily data from the Warsaw Stock Exchange, we implement the event study methodology. As expected, we can observe that the dividend increases are associated with positive abnormal returns and dividend decreases with negative abnormal returns. However, the results are statistically insignificant. Thus, there is no statistically significant relationship between the changes in dividend value and abnormal rates of return on event day and the subsequent days. Therefore, the results of the study do not support the signalling power of dividend changes on the Polish capital market.