An evaluation of stock price reactions to dividend announcements in the US

Abstract

Dividends are defined as the remuneration or cash that shareholders receive out of firms’ earnings. The purpose of this dissertation is to examine the response of market share prices to: favorable, unfavorable and neutral dividend announcements. Under the Dividend Signalling Theory, when a company announces its dividend payout intentions, it signals information about future prospects to the markets. This ultimately results in changes in stock prices. This quantitative investigation is conducted over a sample of 210 announcements on part of 67 companies out of the 500 common stocks comprising the S&P 500 Market Index, during the period 2013-2019. Using event study methodology we estimate the abnormal returns around the public announcement of dividend as well as the promptness of the market reaction to the announcements, and any changes in trading volumes.