Signalling Effects of Dividend Announcements in Tehran Stock Exchange (TSE)
Keywords:
Dividend policy, Dividend announcement, Signaling effects of dividend, Abnormal Returns, Cumulative Abnormal Returns, Risk adjusted market model, Tehran Stock ExchangeAbstract
One of the noteworthy features of dividend policy is that dividend payment can affect share price and firms' value. This paper attempts to analyze the signaling effects of dividend announcements on stock prices using event study methodology in Iran. The study contains a sample of 80 Iranian firms over period of 1997-2008. Considering an event window of 30 days prior and 30 days after the announcement date, the study calculates Abnormal Returns and Cumulative Abnormal Returns using Risk Adjusted Market Model for three categories of dividend announcements, dividend increase, dividend decrease, and no-change in dividend. Then t-statistics and plots are used to analyze significance of the effects of the announcements on stock prices. The findings document that the announcements of dividend increase create positive abnormal returns while negative abnormal returns appear after the announcements of dividend decrease in the market.
References
Aharony, J., Swary, I. (1980). Dividend and Earnings Announcements and Stockholders'Returns: An Empirical Analysis. J. Financ. 35: 1-12.
Aivazian , V., Booth, L., Cleary, S. (2003a). Dividend Policy and the Organization of Capital Markets. Journal of Multinational Financial Management. 13(2): 101-121.
Ambrish, R., John, K., Williams, J. (1987). Efficient Signalling with Dividends and Investments. J. Financ. June: 321-343.
Ang, J. (1987). Do Dividends Matter? A Review of Corporate Dividend Theories and Evidence, Monograph Series in Financial Economics. New York University: Salomon Brothers Center for the Study of Financial Institutions.
Annuar, M. N., Ariff, M., Shamsher, M. (1994). Is Kuala Lampur's Emerging Share Market Efficient? J. Int. Financ. Market. Inst. Money. 4(1/2): 89-100.
Ariff, M., Johnson, L. W. (1990). Securities Markets and Stock Pricing: Evidence from a Developing Capital Market in asia. Singapore: Longman Singapore Publishers.
Baker, H., Powell, G. (1999). How Corporate Managers View Dividend Policy. Q. J. Bus. Econ. 38: 17-35.
Ben-Naceur, S., Ghazouani, S., Omran, M. (2007). The Determinants of Stock Market Development in the Middle-Eastern and North African Region. Manag. Finance. 33 (7): 477-489.
Bhattacharaya, N. (2003). Good Managers Work More and Pay Less Dividends - A Model of Dividend Policy. Financ. Manag. 16(3): 29-35.
Bhattacharaya , S. (1979). Imperfect Information, Dividend Policy, and `The Bird In The Hand’ Fallacy. Bell. J. Econ. 10(1): 259-270.
Brealey, R., Myers, S. (2005). Principles of Corporate Finance (8th ed.). London: McGraw-Hill.
Brickley, J. (1983). Shareholder Wealth, Information Signalling and the Specially Designated Dividend: An Empirical Study. Journal of Financial Economics 12: 187-209.
Brown, S., Warner, J. (1985). Using Daily Stock Returns. Journal of Financial Economics, 14: 3-31.
Cheng, F. F. (2000). The Impact of Accounting Earnings Disclosures on Stock Prices in Malaysia, an Emerging Market. Unpublished PhD Thesis, Universiti Putra Malaysia.
Collins, M. C., Saxena, A. K., Wansley, J. W. (1996). The Role of Insiders and Dividend Policy: A Comparison of Regulated and Unregulated Firms. Journal Of Financial And Strategic Decisions, 9 (2).
DeAngelo, H., DeAngelo, L., Skinner, D. (1992). Dividends and Losses. J. Financ. December: 1837-1863.
Dolley, J. C. (1933). Characteristics and Procedure of Common Stock Split-Ups. Harv. Bus. Rev. 11: 316-326.
Eades , K. (1982). Empirical Evidence on Dividends as a Signal of Firm Value. J. Financ. Quant. Anal. November: 471-500.
Glen, J. D., Karmokoiias, Y., Miller, R. R., Shah, S. (1995). Dividend Policy and Behaviour in Emerging Markets: To Pay or not to Pay. IFC Discussion Paper No. 26, World Bank, Washington, DC, July. .
Gordon, M. (1963). The Savings, Investment and Valuation of A Corporation. Rev. Econ. Stat. 44: 37-51.
Henderson Jr, G. V. (1990). Problems and Solutions in Conducting Event Studies. J. Risk. Insur. 57: 282-306.
Iran Stock Exchange. (2008). Annual Report of the Stock Exchange Organisation. From (www.rdis.ir/YearReport.asp). Tehran.
John, K., Williams, J. (1985). Dividends, Dilution, and Taxes: A Signaling Equilibrium. J. Financ. 40 (4): 1053-1070.
Kumar, P. C., Testsekos, G. P. (1999). The Differentiation of 'Emerging' Equity Markets. Appl. Financ. Econ. 9: 443-453.
Lintner, J. (1956). Distribution of Income of Corporations among Dividends, Retained Earnings and Taxes. Am. Econ. Rev. 46: 97-113.
Miller , M., Modigliani, F. (1961). Dividend Policy, Growth and the Valuation of Shares. J. Bus. 34: 411-433.
Miller, M., Rock, K. (1985). Dividend Policy Under Asymmetric Information. J. Financ. 40(4): 1031-1051.
Norhayati, M. (2005). Information Signaling and Dividend Policies in Malaysia. Unpublished Ph-d thesis, Universiti Putra Malaysia (UPM).
Omran, M. (1999). The Impact of Egypt’s Economic Reform Programme on the Stock Market Performance. Unpublished PhD thesis, University of Plymouth, Plymouth.
Pettit, R. (1972). Dividend Announcements, Security Performance, and Capital Market Efficiency. J. Financ. 27: 993-1007.
Pourheydari, O., Aflatooni, A., Nikbakhat, Z. (2008). The Pricing of Dividends and Book Value in Equity Valuation: The Case of Iran. Int. J. Finance. Econ. 13: 7-17.
Ramcharran, H. (2001). An Empirical Model of Dividend Policy in Emerging Equity Markets. Emerg. Market. Q. 5(1): 39-49.
Samadzadeh, M. (1993). Dividend Policies and their Effect on the Stock Value in the Tehran Stock Exchange. Isfahan university, Isfahan.
Saudi Stock Exchange. (2008). Annual Statistical Report. Market Information Services. From (http://www.tadawul.com.sa/wps/portal).
Shackmurove, Y. (2006). Economic Development in the Middle East, Working Paper Philadelphia: Penn Institute for Economic Research Department of Economics University of Pennsylvania (19104-6297) From (http://www.econ.upenn.edu/pier).
Sharpe, W. F. (1964). Capital Asset Prices: a Theory of Market Equilibrium under Conditions of Risk. J. Financ. XLX (3): 425-442.
Singleton, J. C., Wingender, J. (1986). Skewness Persistence in Common Stock Returns. J. Financ. Quant. Anal. 21: 335-341.
Wooldridge, J. R. (1983). Dividend Changes and Security Prices. J. Financ. 38: 247-255.
Yilmaz , M. K., & Gulay, G. (2006). Dividend Policies and Price-Volume Reactions to Cash Dividends on the Sock Market: Evidence from the Istanbul Stock Exchange. Emerg. Market. Finance. Trade. 42(4).