Stock price reaction to dividend changes: an empirical analysis of the Johannesburg Securities Exchange

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dc.contributor.author Lentsoane, Enos
dc.date.accessioned 2012-05-22T09:40:36Z
dc.date.available 2012-05-22T09:40:36Z
dc.date.issued 2012-05-22
dc.identifier.uri http://hdl.handle.net/10539/11471
dc.description.abstract This paper provides an empirical analysis of the stock price behaviour of firms listed on the Johannesburg Securities Exchange (JSE) around corporate events relating to final cash dividend change announcements over the period 2004 to 2009. Declared for the financial year-end, final cash dividend announcements either represent an increase, a reduction or no change relative to the previous year’s announcement. In this paper we analyse the stock price behaviour of firms that announced dividend reductions before and during the Global Financial Crisis of 2007 (GFC 2007). The pre-crisis analysis focuses on dividend reduction effects on share price during normal economic times and crisis analysis focuses on effects during economic downturn. We refer to the pre and during crises effects as firm-specific and systemic effects respectively. Studies about the general effect of dividend announcements on shareholder value are well documented; however our study is motivated by the fact that there has not been an abundance of forthcoming research in South Africa pertaining to how share prices have reacted to dividend reductions before and during the GFC 2007. We employ an event study methodology in the context of this emerging market to assess the share price behaviour to dividend reductions. Integral to an event study methodology in the corporate context, is the analysis of abnormal performance around the event date. Abnormal performance is measured by employing three widely used quantitative approaches namely, the market-adjusted, market model and the buy-and-hold abnormal return approaches. Based on daily closing share price information collected from iNet Bridge database, abnormal performance is calculated from 2004 to 2009 while controlling for the contemporaneous effect of earnings announcements (earnings data collected from Bloomberg database) occurring within 10 trading days of dividend announcement. The analysis shows that the market reaction is not statistically significant on the announcement day and that more negative returns occur during the pre-crisis period. Volatility of abnormal returns is higher during the pre-crisis period. The research does not support the Irrelevance Theory but seems to support the signalling hypothesis. en_ZA
dc.language.iso en en_ZA
dc.subject Johannesburg Securities Exchange en_ZA
dc.subject Stock prices en_ZA
dc.subject Dividends en_ZA
dc.subject Global financial crisis en_ZA
dc.subject Final cash dividend en_ZA
dc.title Stock price reaction to dividend changes: an empirical analysis of the Johannesburg Securities Exchange en_ZA
dc.type Thesis en_ZA


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