Dividend Increase Announcements Research Articles

Using UK Data to Study the Effects of Dividends Announcements on Stock Market Returns

Using a sample of firms listed on the FTSE-350, this study examines the effects of dividends announcements on the London Stock Exchange (LSE) during the period from 1990 to 2019. We use the dividend-signalling hypothesis to test whether dividends announcements have any effects on stock returns. Our results suggest that dividend increase announcements have a positive effect on stock returns, and dividend decrease announcement reduce stock returns. On average, a dividend increase is estimated to increase stock returns by 6 basis points and a dividend decrease is estimated to reduce stock returns by the same amount. These findings are consistent with the dividend-signalling hypothesis.

Investigating beta anomaly: comparison of Shariah-compliant and conventional stocks

PurposeThe purpose of this paper is to examine the impact of dividend announcements on the stock return of Shariah-compliant and conventional stocks.Design/methodology/approachAn event study methodology is applied to study the beta anomaly. Market-adjusted return model, mean-adjusted return model and market model have been applied to calculate excess returns. Estimation period used in this study is 130 days, and event period consists of 21 days in total, i.e. starting from the day –10 “before the cash dividend announcement” to day +10 “after the cash dividend announcements.FindingsIt has been concluded from the results that dividend plays an informational role in the Pakistan Stock Exchange. As the investors in Pakistan react favorably to the dividend increase announcements and unfavorably to the dividend decrease announcements, they consider dividend increase announcement as good news and dividend decrease announcement as bad news.Practical implicationsThe findings of this study have several implications for different participants of the stock market, such as investors, academicians, researchers, fund managers and policymakers. They can use this information to make decisions while making efficient portfolios. Investors may get abnormal returns by focusing on the dividend announcement patterns. This can influence the attitude of investors toward efficient investments in the stock market and ultimately contribute to the betterment of society. This study is also beneficial for academicians and researchers, as it provides a comparative analysis of Shariah-compliant and conventional stocks and the anomalous effect of dividend announcements on stock return.Originality/valueLimited research in the world’s context and null is available in Pakistani context on the subject matter. The comparative analysis of “Shariah-compliant” and “conventional” stocks provides insight into the asset pricing of Shariah-compliant stocks that have not been explored earlier. This study also uses three different methods (mean model, market model and market-adjusted return models) to compare Shariah-compliant and conventional stocks

The Effect of Dividend Announcements on Stock Returns for Companies Listed on the Main Board of the Kuala Lumpur Stock Exchange

Stock market reactions to the announcements of final dividend increases, decreases and no changes are empirically analyzed in an emerging market environment. A standard event study methodology is adopted to examine the price reactions of 120 listed companies surrounding sixty days of the announcement dates. Although prior studies in developed countries postulate that dividend decreases are associated with negative abnormal returns, such a reaction was not found in the Malaysian capital market. The evidence nevertheless shows that dividend increases lead to positive abnormal returns, supporting the Information Content Hypothesis, Jensen :s Free Cash Flow Hypothesis and Agency Cost Theory. As for the no change dividend announcements, no clear pattern of cumulative average abnormal returns could be observed.

Impacts of Dividend Announcement on Stock Price: An Empirical Study of the Vietnam Stock Market

The Vietnam stock market is a new market in which dividend taxes are higher than capital gains taxes, Vietnamese firms have a high state-ownership, a majority of dividends are paid by cash and there is significant inconsistency in dividend payouts. This paper investigates the effect of dividend increase announcements on stock price reactions. A total of 198 announcements for 101 companies listed on the HOSE market was investigated, the results indicated that announcements of dividend increase do not cause reactions in security prices. The obtained results support Black’s tax-based dividend signaling hypothesis about the condition for dividend announcements becoming market information when dividend taxes are higher than capital gains taxes. These findings of this study are also in line with other previous studies.

Corporate social responsibility and the wealth gains from dividend increases

This study examines whether corporate social responsibility (CSR) influences the stock price response to dividend increase announcements and changes in subsequent operating performance. We find that dividend increasing firms with lower CSR scores elicit higher abnormal announcement returns and greater improvements in industry-adjusted operating performance. These findings support the argument in the literature that socially responsible firms are more transparent and commit to higher ethical standards than other firms, suggesting that they suffer fewer agency and informational problems (Kim, Park, & Wier, 2012). Consequently, larger dividend payouts reduce agency costs in firms with lower CSR commitments, thereby generating higher wealth gains for shareholders.

Market reactions to dividends announcements and payouts. Empirical evidence from the Warsaw Stock Exchange

The main goal of this paper is the empirical examination of the Polish stock market reactions to dividend announcements and dividend payouts made by the companies listed on the Warsaw Stock Exchange (WSE). The research sample comprises 56 companies (WIG index constituents) that announced dividend payments and completed the payout during 2013. In the analysis, event study methodology is employed including either calculating abnormal returns and cumulative abnormal returns around the event day or testing their statistical significance using parametric and nonparametric tests. The average cross-sectional abnormal return calculated for the entire sample is found to be significant on the dividend announcement day (t = 0, 0.86%) and on one day after (t = 1, 0.59%) at the 1% and 10% significance levels, respectively. The outcomes of the analysis conducted within the three distinguished subsamples are rather more diverse. In the subgroup of the first announced dividends (or dividends announced after a minimum one-year break), the significant average abnormal return is found on day t = 1 (0.90%, 5% significance level), whereas in the case of the dividend decreases subsample, the significant average abnormal returns (at the 10% significance level) occur on days t = −4 (-1.44%) and t = 2 (-1.15%). The average abnormal return calculated within the subsample of dividend increases turns out to be positive and significant on day t = 1 (1.03%, 10% significance level). The results obtained for the average cumulative abnormal returns corroborate the findings reached for the average cross-sectional abnormal returns in the case of the first dividend and dividend increase subsamples. However, the average cross-sectional abnormal returns calculated within the eleven-day-long event window around the dividend payment day turn out to be statistically insignificant. The obtained results provide evidence that the Polish stock market reaction to dividend announcements is positive and immediate. However, the market does not significantly react to dividend payouts, which may lead to the conclusion that the WSE directly incorporates news on dividends into stock prices. Moreover, the reaction of the market for dividend announcements is consistent with the sign of the dividend change: dividend-increase (-decrease) announcements are interpreted as a positive (negative) signal by the investors. Such results support both the informational content of the dividend hypothesis and the dividend signaling hypothesis. Considering that the observed abnormal market behavior disappears within two days at most after the announcement date, the results of the study can be useful for financial practitioners only with regard to short-term investment decisions.

TRANSFER INFORMASI INTRAINDUSTRI PADA PENGUMUMAN KENAIKAN DIVIDEN

The aim of this research is to test intra-industry transfer in the announcement of dividend increase in Indonesia Stock Exchange. This research is to prove the behaviour of competitor companies (nonreporter) in the same industry with company which makes the announcement of dividend increase (reporter) to the companies. The latest samples are 381 companies. The result of this test is showing that announcement of devidend increase has a significant effect to the judgement of companies which are not make the announcement. This announcement is make a competitive effect. This effect shows that the good news from the reporter company will be bad news for the other companies in the same industry. The statistic menthod which is used to test the hypothesis is t test. This research is also used to test the reaction from the nonreporter companies which already or not yet announce their devidend. The result of this test shows that there are no difference reaction from the nonreporter companies, which already or not yet announce their dividend. It means that investors more interest to get some profit from capital gain than dividend.Keyword: transfer of information, intraindustry, dividend

On Choosing an Optimal Dividend Policy in India: A Test of Substitution Hypothesis, 1999–2016

We aim to highlight quantitative significance of share buyback in an emerging economy, India by documenting its emergence and trends in stock over time, 1991–2011. The market reaction to the impact of stock repurchase program and dividend increase announcements on share price behavior and their relative signaling power with reference to Indian firms is empirically tested. Further, the problem at hand is to provide insights to what are the determinants of the choice between increasing dividends and utilizing an open market stock repurchase and the impact of that choice on the stockholders’ wealth position in India. The analysis is conducted from two points of view. First, we investigated how the market perceives and reacts to announcements of cash distribution method through dividend increase and to share repurchase. Second, we looked into what determinates corporate payout policy when marginal disbursements could be done with either dividend increase or stock repurchases. Some evidence is provided to reject the null hypotheses that managers do not discriminate in their choice of a payout method. Dividend paying and stock repurchasing firms display significant differences in firm characteristics. Further, firms do not appear to randomly choose between the various disbursements choices. Though weakly, our results suggests that large firms like to substitute repurchases for dividends.

The wealth effects of dividend announcements on bondholders: New evidence from the over-the-counter market

This paper investigates the announcement effect of dividend changes on bondholders using bond transaction data from the over-the-counter market. Abnormal bond returns over a three-day event window are positive surrounding dividend increase announcements and negative surrounding dividend omission announcements. The bond market reaction to the dividend increases is more positive for larger dividend increases, speculative grade bonds and the period from 2008 to 2010. Most of the results are consistent with the signaling hypothesis. Additionally, bond market reactions to dividend decreases and initiations are insignificant. The stock market reacts negatively to dividend decreases and positively to dividend initiations. The bond and stock market reactions to dividend decreases and initiations suggest that there is also a wealth transfer effect.

Determinants of stock prices during dividend announcements: an evaluation of firms' variable effects in Nigeria's oil and gas sector

AbstractThe aim of this research was to analyse, statistically significant, quantitative variables that determine the share price of oil and gas sector companies listed on the Nigerian Stock exchange, during the economic slowdown period of 2009–2013, after the world financial crisis of 2008, and investigate whether the signalling hypothesis holds or not. In terms of analytical tools, multiple regression analysis is used. During dividend increase announcements, the regression coefficient determinant (R2) indicates that over 90 per cent of variations in stock prices is explained by variations in dividend announcements. This study supports the dividend signalling hypothesis (DSH) but discredits the efficient market hypothesis. During a dividend decrease, the R2 for both equations indicates that over 64 per cent of variations in stock prices is explained by variations in dividend announcements. This result also supports the DSH. The implication of this is that racketeers can capitalise on this and make unjustified returns. By so doing, both sector investors and the stock market will be short changed. As this research considers only the oil and gas sector, further studies need to be conducted that consider possibly all listed firms in the Nigerian stock market, within the same interval to further investigate if the signalling hypothesis will hold or not. But most appropriately, applicable, as a comparative study of the same sector before and after the world financial crisis of 2008 the paper seeks to find out if this phenomenon is also applicable to OPEC member states. This research is in progress.

FIRM-SPECIFIC FACTORS AND THE MARKET REACTION TO DIVIDEND CHANGE ANNOUNCEMENTS: EVIDENCE FROM EUROPE

According the dividend signalling hypothesis, it is expected a positive relationship between dividend change announcements and the subsequent share price reactions. However, empirical results are not consensual. This study investigates whether firm-specific factors contribute to explain a negative market reaction to dividend change announcements, contributing to the scarce analysis of firm-specific factors explaining the inverse share price reaction to dividend change announcements. The study applies the panel data approach to three European markets. The results show that the market reaction to dividend change announcements is negatively associated with the firm size. We find that the negative market reaction to dividend increase announcements is associated with firms that have, on average, lower dividend changes and higher growth opportunities. Moreover, the results suggest that a high percentage of dividend negative changes, decreases the likelihood that the market reacts positively to a dividend decrease announcement. Globally, we find some evidence for the dividend signalling hypothesis.

Are Certain Dividend Increases Predictable? The Effect of Repeated Dividend Increases on Market Returns

The authors report the findings of their study of over 400 stocks of public companies that announced at least 20 consecutive increases in their dividends during the period 1999 and 2009. With the assumption that the stock market learns to anticipate future dividend increases from current patterns, the study was designed to answer the question: How many increases does it take for the market to anticipate, and “price in,” the pattern of dividend increases?The authors report finding that abnormal returns around the first and second announcements of dividend increases are significant and positive, but are much less significant for the third and further increases. They also find that the size of the dividend increases tends to fall with more increases, and that the largest percentage dividend changes occur early in the sequence.

Dividend Initiations, Increases and Idiosyncratic Volatility

We examine three aspects of the relation between dividend initiation and increase announcements and idiosyncratic volatility. First, consistent with dividend signaling, we find that firms with higher levels of idiosyncratic volatility are associated with higher announcement abnormal returns when initiating or increasing dividends. Second, high idiosyncratic volatility firms are associated with stronger positive post event return drift. Finally, firms on average experience an ex post reduction in idiosyncratic volatility following dividend initiations that is associated with announcement and long-term abnormal returns.

An analysis of the significance of information content in dividend announcements: the case in Indonesia

This research aims at examining the significance of the information content in dividend announcements, using the Indonesian context. The sample of this research consists of dividend announcements during 2006 – 2012 periods. The result of this research shows that the market reacts positively to the dividend increase announcements. Investors perceive that a dividend increase is good news, thus they react positively. Indonesian investor react negatively to the dividend decrease announcement. A dividend decrease is bad news, thus they react negatively. On the other hand, investors do not react to the no-change dividend announcement. These results show that dividend announcements in Indonesia contain significant information for the investors.

REAKSI PASAR TERHADAP PENGUMUMAN KENAIKAN DAN PENURUNAN DIVIDEN PADA INDUSTRI PERBANKAN YANG TERDAFTAR DI BURSA EFEK INDONESIA PERIODE 2008-2010

This study aims to determine how the market reaction to announcements of dividend increases and decreases in the Banking Companies listed on the Indonesia Stock Exchange 2008-2010 period. This study population was 31 banking companies that announced dividend increases and decreases during the period 2008-2010. Data collection technique used was purposive sampling. Of the 31 existing populations, selected 7 samples that meet the criteria penelitian. Teknik analysis of the data used is the one sample t-test. The research proves that in 2009 the abnormal return only occurs on day 5 before the announcement of devidend increase, while the other day, thus indicating no abnormal return. Research in 2010, it is known that there is no abnormal return on announcement of an increase or descrease in dividends.

The Effective Value Enhancement – The Impact of a Surprise Dividend Increase on Stock's Performance

This article measures the reaction of marginal investors to announcement of surprise dividend increase. However, the field research is performed on companies listed on Warsaw Stock Exchange, the article has strong theoretical implication. The valuation theory gives many clues for interpretation of dividend changes. At the start of literature review, the dividend irrelevance (to investment decision) assumption is met. This assumption holds up-to-date valuation procedures leading to fundamental and fair market valuation of equity (shares). This article is designed to verify whether the market value of stock is immune to surprise dividend announcement. The surprise dividend effect study gives the chance to partially isolate this event from dividend changes based on long-term expectations.The result of the research explicitly shows that the surprise dividend increase is on average welcomed by the investors (2,24% average abnormal return at the significance level of 0,1%). The abnormal returns are realized by investors increases with the increase in surprise dividend payout. The subsample of relatively high dividend payout enables investors to gain 3,2% return. The results show that valuation models should be revised with respect to the possible impact of investors’ reaction to dividend changes.This paper is under editorial process for Operation Research and Decisions.

The role of accruals as a signal in earnings and dividend announcements

PurposeThe purpose of this paper is to examine whether managers deliberately use accruals to convey information regarding firm future profitability.Design/methodology/approachThe paper uses contemporaneous earnings and dividend increase announcements in New Zealand as the research setting. This setting reduces the possibility of opportunistic income smoothing by managers and, hence, increases the validity of the inference on the accrual signaling hypothesis. The paper employs a refined accrual model that controls the performance effects in estimating the part of accruals subject to managerial discretion.FindingsThe paper finds evidence consistent with managers using both accruals and changes in dividends to communicate private information regarding firm future profitability to the market. In particular, dividend‐increasing firms are observed to report positive accruals that are correlated with the positive market reaction to dividend increase announcements and future profitability. These findings are robust to performance, growth, and post‐earnings announcement drift effects.Originality/valueThis paper provides evidence that managers use accruals in conjunction with a corporate event to convey their private information regarding firm profitability. The results of the study are expected to shed more light on signaling aspects of accruals and to some degree alleviate the negative perception of managerial discretions over accruals vastly documented in the earnings management literature. This will hopefully add supporting evidence to the signaling hypothesis of accruals, which has so far received limited attention in the literature.

An Examination of the Free Cash Flow and Information/Signaling Hypotheses Using Unexpected Dividend Changes Inferred from Option and Stock Prices: The Case of Regular Dividend Increases

This paper measures unexpected dividend changes in testing the free cash flow and information/signaling hypotheses using the Bar–Yosef/Sarig method. The empirical findings reveal the following: (i) The association between announcement period abnormal returns and the cash level is significantly positive for low q firms; (ii) The positive association between announcement period, abnormal returns, and the cash level is stronger in low q than in high q firms for most regressions; (iii) Low q firms reduce their capital and research and development (R&D) expenditures during the four fiscal years following dividend increase announcements. Our results are consistent with the free cash flow hypothesis.

The information content of cash dividend announcements in a unique environment

Due to its distinctive institutional background, Oman offers a valuable opportunity to examine stock price reactions to dividend announcements. In Oman, (1) there are no taxes on dividends and capital gains, (2) there is a high concentration of share ownership, (3) there is low corporate transparency, and (4) firms frequently change their dividends. Our results show that announcements of dividend increases are associated with increased stock prices, while announcements of dividend decreases cause decreases in stock prices. Firms that do not change their dividends experience insignificant negative returns. These results contradict tax-based signaling models, which argue that higher taxes on dividends relative to capital gains are a necessary condition for dividends to be informative.

R² Dividend Signalling, and Earning Prospects

If investors perceive dividend changes as providing signals about specific firms’ future prospects, it can be argued that the magnitude of stock price reactions to dividend change announcements will vary with the relative importance of the firms’ specific information in their return dynamics. We find that price reactions to dividend announcements are significantly stronger for stocks with lower levels of R2. This finding is more pronounced and more robust for dividend increase announcements. In terms of the real signal about earning prospects, we show that current year dividend changes are more correlated to future earnings among stocks with lower levels of R2. In this case the relationship is stronger for dividend decrease announcements and sensitive to firm size. Taken together, our results support the traditional view that dividend announcements signal information about firms’ prospect to the stock market. At the same time we highlight the complexity of such dynamics, especially the discrepancy between investors’ expectation and the real signal conveyed by the firms about their future prospects. Our empirical framework can be generalized to apply to other signalling effects in literature.