Event Title

Determining the Effectiveness of Dividend Change as an Indicator of Price Movement

Session Number

H03

Advisor(s)

Maxwell Rhee, TransMarket Group

Location

A-135

Start Date

28-4-2016 2:00 PM

End Date

28-4-2016 2:25 PM

Disciplines

Economics

Abstract

Identifying factors that affect the price movements of a stock comprises the core of strategy development. Earnings surprise, price to earnings to growth, and return on equity are some of the more common factors. Dividend change, however, has had mixed results. Some researchers have concluded that dividends have no influence on prices while others have identified a direct causation. This paper examines the effects that dividend changes have on a company stock price, measured in terms of abnormal returns up to sixty days after the dividend announcement. To do so, we conducted a multiple-factor linear regression of dividend events against its respective company size, value, and expected return. This regression would eliminate variation in price movements related to the company itself, thus removing noise that may compound the effects of the dividend event. Current theories such as the Dividend Signaling and Free-Cash-Flow hypotheses predict that an increase (decrease) in dividend payout will result in a positive (negative) price movement. However, our results had shown no significant stock price movements resulting from dividend changes.


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Apr 28th, 2:00 PM Apr 28th, 2:25 PM

Determining the Effectiveness of Dividend Change as an Indicator of Price Movement

A-135

Identifying factors that affect the price movements of a stock comprises the core of strategy development. Earnings surprise, price to earnings to growth, and return on equity are some of the more common factors. Dividend change, however, has had mixed results. Some researchers have concluded that dividends have no influence on prices while others have identified a direct causation. This paper examines the effects that dividend changes have on a company stock price, measured in terms of abnormal returns up to sixty days after the dividend announcement. To do so, we conducted a multiple-factor linear regression of dividend events against its respective company size, value, and expected return. This regression would eliminate variation in price movements related to the company itself, thus removing noise that may compound the effects of the dividend event. Current theories such as the Dividend Signaling and Free-Cash-Flow hypotheses predict that an increase (decrease) in dividend payout will result in a positive (negative) price movement. However, our results had shown no significant stock price movements resulting from dividend changes.