THE IMPACT OF DIVIDEND DISTRIBUTION ANNOUNCEMENTS ON STOCK PRICES: AN EVENT STUDY AT THE ISTANBUL STOCK EXCHANGE

Abstract

Purpose- The dividend is an essential part of the company's financial image. Because of its long-term growth, it is an overall source of return for an investor and a reliable predictor of the company's valuation. According to dividend distribution theory, when a corporation decides to disclose its dividend payment policy to indicate the market where it is now processing prospects, the price of its shares changes. The purpose of this article is to show how share prices on the Istanbul Stock Exchange react after dividends are distributed. Methodology- The data from the Daily returns Series from the Turkish Financial Market between 2011 and 2017 was used to fulfill the goal of the study. The effect of the32 dividend announcement events for 8 banks on the 20-day announced stock price was examined using an event study approach which aid in predicting what stocks will look like in response to an event announcement. Findings- The findings revealed that the market response was positive and the stock values have increased after dividend announcements. The market models CAR(5.0) and CAR(10.0) have statistically significant abnormal returns (AR0) and abnormal cumulative returns. Also, The tracking of the daily average return separately for each day showed that AAR's profit distribution day was 0.49 %, the fourth day had the highest positive increase of 0.56 %, and the fifth day had a positive high positive return of 0.47 %. Conclusion- The results of this empirical study show that stock prices change after dividend announcements, and that support the dividend notification theory, which states that dividend announcements have a significant impact on stock prices. The researchers propose extending the run window to 61 days rather than 21 days in order to monitor the continued decline ten days after the event.

Keywords

• Dividend distribution
• event study
• stock market reactions
• Istanbul Stock exchange

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