Stock Price Reaction to Dividend Announcements A Study on Dividend Changes and Dividend Surprises

Abstract

This study aimed at comparing the reaction towards cumulative abnormal returns from dividend announcements including dividend surprises and changes in dividend yield from preceding payment of those securities initiating the dividend payout listed on the Stock Exchange of Thailand. In many previous studies, changes in dividend yield were often chosen in examining the effect of dividends. However, this study additionally incorporated dividend surprises being defined by the differences between actual dividend yield and forecasted one from analysts retrieved from DataStream to gauge such effect. This study collected 84 securities from The Stock Exchange of Thailand during 2010 and 2014; bearing 349 dividend announcement events. In addition, the study intended to study the effect of dividend announcements towards security prices in window periods of 1 day, 3 days, 10 days, and 30 days prior to and after the announcements.

            The results revealed that changes in dividend yield from preceding payment echoed stronger impact of dividend toward security prices comparable to dividend surprises. Furthermore, it was appeared significant effect of dividend announcements for only the window period of 1 day prior to and after the announcements but this did not apply to those of window periods of 3 days, 10 days, and 30 days.