International Journal of Financial Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Impact of Dividend Announcements on Stock Prices of UK Firms Listed in London Stock Exchange


Affiliations
1 Accountancy & Finance, Paul University Awka, Nigeria
     

   Subscribe/Renew Journal


The aim of this paper is to explore the possible relationship between dividend announcement and stock price reactions upon announcements by the quoted firms in London Stock Exchange (LSE). For the sake of this study, an event-study methodology was employed to calculate any abnormal or excess returns around dividend announcements for 100 firms listed in the LSE over a period of 5 years (2010-2014).

The result of the event study indicates that dividend announcements do not convey information to investors (Khan, 2011). The researcher concludes by saying that dividend announcements do not convey any information to share prices, which is in consonance with the M-M Dividend Irrelevance Theory.


Keywords

Dividend Announcement, Signalling Hypothesis, Stock Prices, Event-Study Methodology, London Stock Exchange.
Subscription Login to verify subscription
User
Notifications
Font Size

  • Aharony, J., & Swary, I. (1980). Quarterly dividend and earning announcements and stockholders’ returns: An empirical analysis. Journal of Finance, 35, 1- 12.

  • Akbar, M., & Baig, H. H. (2010). Reaction of stock prices to dividend announcements and market efficiency in Pakistan. The Lahore Journal of Economics, 15, 103-125.

  • Ali, S., & Akbar, M. (2009). Calendar effects in Pakistani stock market. International Review of Business Research, 5(1), 389- 404

  • Ali, A., & Sharif, I. (2001). Effect of dividend on stock prices. Journal of Business and Management Studies: International Journal, 3, 56-87

  • Ali, S. S., & Mustafa, K. (2015). Testing semi-strong form efficiency of stock market. The Pakistan Development Review, 40(4) Part II (winter) pp. 651–674.

  • Allen, D. E., & Rachim, V. S. (1996). Dividend policy and stock price volatility: Australian Evidence. Journal of Applied Economics, 6, 175-188.

  • Almujamed, H. I. (2011). Technical Analysis in the Kuwait Stock Exchange. Unpublished PhD Dissertation, School of Business, and University of Dundee, UK.

  • Al-Malkawi, H. N. (2007). Determinant of corporate dividend policy in Jordan: An application of the Tobit Model. Journal of Applied Accounting Research, 23, 44-70.

  • Al-Najjar, B., & Hussainey, K. (2009). The association between dividend payout and outside directorships. Journal of Applied Accounting Research, 10, 4-19.

  • Al-Najjar, B. (2011). The inter-relationship between capital structure and dividend policy: Empirical evidence from Jordanian data. International Review of Applied Economics, 25(2), 209-224. ISSN 0269-2171

  • Arnold, G. (2013). Corporate Financial Management (5th ed.). Pearson Education Limited, Edinburgh Gate Harlow CM20 2JE England.

  • Azhagaiah, & Priya, S. N. (2008). The impact of dividend policy on shareholders wealth. International Research Journal of Finance and Economics, 180-187.

  • Baker, H. K., & Powell, G. E. (1999). How corporate managers view dividend policy. Quarterly Journal of Business and Economics, 38(2), 17-35.

  • Baker, H. K., Farrelly, G. E., & Edelman, R. B. (1985). A survey of management views on dividend policy. Financial Management, 14(3), 78-84.

  • Baskin, J., (1989). Dividend Policy and the volatility of common stock. The Journal of Portfolio Management, 15, 19-25.

  • Bell, L., & Jenkinson, T. (2002). New evidence of the impact of dividend taxation and on the identity of the marginal investor. Journal of Finance, 57(3), 1321-1346.

  • Bhattacharya, S. (1979). Imperfect information dividend policy, and the ‘bird in the hand’ fallacy. Bell Journal of Economics, 10, 259-270

  • Bhattacharya, S. (1980). Non dissipative signalling structures and dividend policy. The quarterly journal of Economics, 95, 1-24.

  • Black, F., & Scholes, M. (1974). The effects of dividend yield and dividend policy on common stock prices and returns. Journal of Financial Economics, 1(1), 1-22.

  • Brav, A., Graham, J. R., Harvey, C. R., & Michaely, R. (2005). Pay out -policy in the 21st century. Journal of Financial Economics, 77, 483-527.

  • Brealey, R. A., Myers, S. C., & Marcus, A. J. (2008). Fundamentals of corporate finance (6th ed.). McGraw-Hill Publisher

  • Brown, S. J., & Warner, J. B. (1985). Using daily stock returns. Journal of Financial Economics, 3-31, North-Holland.

  • Bryman, A. (1988). Social research methods (4th ed.). Oxford University Press.

  • Burrell, G., & Morgan, G. (1979). Sociological Paradigms and Organizational Analysis. Heinemann. pp. 1-37.

  • Celsing, W. (2017). Share price reaction to dividend announcements. Unpublished thesis.

  • Creswell, J. W. (1994). Qualitative, Quantitative, and mixed methods approaches (2nd ed.). Sage Publishers.

  • De Angelo, H., & Rice, E. M. (1985). Managerial ownership of voting rights: A study of public corporations with dual classes of common stock. Journal of Financial Economics, 14, 33-69.

  • Dittmar, A. K. (2000). Why do Firms Repurchase Stock’? The Journal of Business, 73, 331-355.

  • Dyckman, T. (1984). Dividend announcements and stock returns. Interdisciplinary Journal of Contemporary Research in Business, 3(8).

  • Easterby-Smith, M., Thorpe, R., Jackson, P., & Lowe, A. (2008). Management research (3rd ed.). London: Sage.

  • Elton, E. J., & Grubber, M. J. (1970). The marginal stockholders tax rates and the clientele effect. The Review of Economics and Statistics, 52, 68-74.

  • Fama, E. F. (1965). The behaviour of stock-market prices. The Journal of Business, 38(1), 34-105.

  • Fama, E. F., & Babiak, H. (1968). Dividend policy: An empirical analysis. Journal of the American Statistical Association, 63(324), 1132-1161.

  • Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25, 383-420.

  • Fama E., & French, K. (2001). Disappearing dividends: Changing firm characteristics or lower propensity to pay? Journal of Financial Economics, 60, 3-43.

  • Gill, J., & Johnson, P. (1997). Research methods for managers (2nd ed.). Paul Chapman Publishing Ltd. London.

  • Graham, J. R., & Kumar, A. (2006). Do dividend clienteles exist? Evidence on dividend preference of Retail investors. Journal of Finance, 61, 1305-1336.

  • Gordon, M. J., & Sharpiro, E. (1956). Capital equipment analysis: The required rate of profit. Management Science, 3, 102-110.

  • Gordon, M. J. (1959). Dividends, earnings, and stock prices. Review of Economics and Statistics, 41, 99-105.

  • Institute of Chartered Accountants of Nigeria, (2006). Study Pack on Business Communication and Research Methodology. VI Publishing Limited.

  • Kaleem, A., & Salahuddin, C. (2006). Impact of dividend announcement on common stock prices at Lahore stock exchange (Pakistan). South Asian Journal of Management, 13(2).

  • Kane, A., Lee, Y. K., & Marcus, A. (1984). Earnings and dividend announcements: Is there a corroboration Effect? Journal of Finance, 39, 1091-1099.

  • Khan, N. U. (2011). Dividend policy and the stock market reaction to dividend announcements in Pakistan. University of Dundee

  • Khaled, H., Chijioke, O. M., & Aruoriwo, M. (2010). Dividend policy and share price Volatility: UK Evidence of Finance, 27, 993-1007.

  • Linter, J. (1956). Distributions of incomes of corporations among dividends, retained earnings and taxes. American economic Review, 46(1), 97-113.

  • Lintner, J. (1962). Dividends, earnings, leverage, stock prices and the supply of capital to corporations. The Review of Economics and Statistics, 44, 243-269.

  • Litzenberger, R. H., & Ramaswamy, K. (1979). The effect of personal taxes and dividends on capital asset prices. Journal of Financial Economics, 7(2), 163-195.

  • Litzenberger, R. H., & Ramaswamy, K. (1982). The effect of dividends on common stock prices: Tax effects or information effects? Journal of Finance, 37(2), 429-443.

  • Long, J. (1978). The market valuation of cash dividends: A case to consider. Journal of Financial Economics 6, 235-264.

  • Lonie, A. A., Abeyratna, G., Power, D. M., & Sinclair, C. D. (1996). The stock market reaction to dividend announcements: A study of complex market signals. Journal of Economic Studies, 23(1), 32-52.

  • Lonie, A. A., & Abeyratna, G. (1996). The stock market reaction to dividend announcement. A UK study of complex market signals. Journal of Economic Studies, 23, 32-52.

  • Mallikarjunappa, T., & Manjunatha, T. (2009). Stock price reactions to dividend announcements. Journal of Management and Public Policy, 1(1), 43-56.

  • Mccluskey, T. (2006). An Empirical Investigation of the Dividend Decision in Irish Companies. Unpublished PhD Thesis, School of Business, and University of Dundee.

  • Mccluskey, T., Burton, B. M., & Power, D. M. (2007). Evidence on the Irish financial Directors’ views about dividend. Qualitative Research in Accounting & Management, 4(2), 115-132.

  • Mccluskey, T., Burton, B. M., Power, D. M., & Sinclair, C. D. (2006). Evidence on the Irish stock market’s reaction to dividend announcements. Journals of Applied Financial Economics, 16(8), 617-28.

  • Miller, M., & Modigliani, F. (1961). Dividend Policy, growth and the valuation of Shares. The Journal of Business, 34, 411-433

  • Miller, M. H., & Scholes, M. S. (1982). Dividends and taxes: Some empirical evidence. Journal of Political Economy, 90(6), 1118-1141.

  • Pandey, I. M. (1998). Financial management (8th ed.). Vikas Publishing House Pvt Ltd.

  • Nishat, M., & Irfan, C. M. (2011). Dividend policy and stock price volatility in Pakistan.

  • Pettit, R. R. (1972). Dividend announcements, security performance, and capital market efficiency. The Journal of Finance, 27(5), 993-1007.

  • PETROS, J. (2011). Dividend policy and stock price volatility: A case of the Zimbabwe stock exchange. Journal of Finance and Accountancy

  • Poterba, J. M. (1986). The market valuation of cash dividends. Journal of Financial Economics 15, 395-405.

  • Ritter, J. R. (1991). The long-run performance of initial public offerings. Journal of Finance, 46, 3-27. American Finance Association.

  • Schwert, G. W. (1983). Size and stock returns, and other empirical regularities. Journal of Financial Economics, 12, 3-12, North-Holland Publishing Company.

  • Strong, N. (1992). Modelling abnormal returns. Journal of Business Finance and Accounting, 19, 533-553.

  • Walter J. E. (1963). Dividend policy and its influence on the value of the enterprise. Journal of Finance, 18, 280-291.

  • Woolridge, J. R., & Ghosh, C. (1985). Dividend cuts: Do they always signal bad news? Midland Corporate Finance Journal, 3(2), 20-32.

  • Uddin, M. H. (2003). Effect of Dividend Announcement on Shareholders Value: Evidence from Dhaka Stock Exchange. Global Corporate Governance Forum (Sponsored by World Bank), 13-16 December, Hyderabad, (India).


Abstract Views: 214

PDF Views: 0




  • Impact of Dividend Announcements on Stock Prices of UK Firms Listed in London Stock Exchange

Abstract Views: 214  |  PDF Views: 0

Authors

Emeka Henry Alaeto
Accountancy & Finance, Paul University Awka, Nigeria

Abstract


The aim of this paper is to explore the possible relationship between dividend announcement and stock price reactions upon announcements by the quoted firms in London Stock Exchange (LSE). For the sake of this study, an event-study methodology was employed to calculate any abnormal or excess returns around dividend announcements for 100 firms listed in the LSE over a period of 5 years (2010-2014).

The result of the event study indicates that dividend announcements do not convey information to investors (Khan, 2011). The researcher concludes by saying that dividend announcements do not convey any information to share prices, which is in consonance with the M-M Dividend Irrelevance Theory.


Keywords


Dividend Announcement, Signalling Hypothesis, Stock Prices, Event-Study Methodology, London Stock Exchange.

References