Is the stock dividend ex-day effect due to market microstructure?: Contrary evidence from Korea

Dhatt, Manjeet S.; Kim, Yong H.; Mukherji, Sandip

doi:10.1016/s1044-0283(96)90015-0

Cited by 4 publications

(15 citation statements)

References 21 publications

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“…A significant positive price reaction centred on the ex-date, is also widely documented across a range of studies (see, for example, Woolridge, 1983a;Eades, Hess and Kim, 1984;Grinblatt, Masulis and Titman, 1984, in US;Athanassakos and Smith, 1996, in Canada;Dhatt, Kim andMukherji, 1994, in Japan andDhatt, andMukherji, 1996, in Korea). Such findings are 'anomalous' given that (a) ex-dates generally occur several days after the announcement dates and (b) there is no new information (systematically) released to the market on stock dividend ex-dates.…”

Section: Introductionmentioning

confidence: 65%

“…Such findings are 'anomalous' given that (a) ex-dates generally occur several days after the announcement dates and (b) there is no new information (systematically) released to the market on stock dividend ex-dates. Dhatt et al . (1994) argued that researchers in the US have attributed the ex-date effect of stock dividends to trading regulations and features of the US market, in the absence of any convincing rationale.…”

Section: Introductionmentioning

confidence: 99%

“…(1994) argued that researchers in the US have attributed the ex-date effect of stock dividends to trading regulations and features of the US market, in the absence of any convincing rationale. Dhatt et al . (1994) examined the ex-date effect of stock dividends in Japan, where there are no odd-lot transaction costs and find 2.06 per cent of abnormal return for the four days around ex-dates.…”

Section: Introductionmentioning

confidence: 99%

“…L i t e r at u r e R e v i e w a) Ex-date price reaction to stock dividends A significant positive price reaction centred on the ex-date is also widely documented across a range of studies. Dhatt et al . (1994) argued that researchers in the US have attributed the ex-date effect of stock dividend to trading regulations and features of the US market, in the 3 They argued that financial companies are very closely scrutinised and followed by analysts and investors; and the level of information relating to financial sector companies is (on average) expected to be much greater than non-financial companies.…”

Section: Introductionmentioning

confidence: 99%

“…They found large stock dividends also yield ex-date abnormal return, concluding that the ex-date effect cannot be explained by the incomplete stock price adjustment to the payment of small stock dividends. 5 Dhatt et al . (1994) examined the ex-date effect of stock dividends in Japan, where there are no odd-lot transaction costs, and found 2.06 per cent of abnormal return for four days around exdates.…”

Section: Introductionmentioning

confidence: 99%

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A Further Examination of the Price and Volatility Impact of Stock Dividends at Ex-Dates*

2005

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We examine the price and volatility reaction around stock dividend ex-dates for an Australian sample, over the period January 1992 to December 2000. We find that price reaction around stock dividend exdates provides positive abnormal returns both prior, and subsequent, to the abolishment of par value of shares in July 1998. When we partitioned the sample into financial, industrial non-financial and mining firms, the price reaction is found to be positive and significant only for industrial non-financial companies. Volatility of daily returns for periods subsequent to ex-dates is significantly greater than corresponding periods prior to announcement dates, while cumulative raw returns subsequent to exdates are significantly lower than periods prior to announcement dates for industrial non-financial companies. The magnitude of the price reaction is statistically significantly related to an increase in the volatility of daily returns and to a reduction in cumulative raw returns subsequent to the ex-dates, for industrial non-financial companies. These findings support buying pressure hypothesis suggested by Dhatt et al . (1994Dhatt et al . ( , 1996. I . I n t r o d u c t i o nIn theory stock dividends (referred to as 'bonus issues' in Australia and New Zealand) do not affect the financial position of shareholders, nor do they improve the financial position of the issuing company. They represent distributions of additional shares, resulting in each shareholder owning a greater number of shares in the issuing company. However, the relative claim of each shareholder on the assets of the company remains unchanged. That is, in theory (absent any potential information effects that will be centred at the earlier announcement date) at the stock dividend ex-date we should observe a value neutral reduction in stock price, that exactly offsets the dilution effect of the increased number of shares outstanding. Thus, once this 'dilution effect' has been taken into consideration, there should be no impact on the returns distribution of stock dividend shares at the ex-date.If capital markets are efficient, any abnormal price reaction should occur at the time of the announcement in response to the information content contained therein. Extensive research has been conducted to examine the impact of stock dividends on share prices around announcement

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Section: Introductionmentioning

confidence: 65%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

A Further Examination of the Price and Volatility Impact of Stock Dividends at Ex-Dates*

2005

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Investor overreaction and the ex-date price behavior of stock dividends: evidence from the Taiwan Stock Exchange

Jiang¹,

Huang

2010

Journal of Statistics and Management Systems

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Market Reaction to Stock Dividends: Evidence from India

Mehta¹,

Jain²,

Yadav³

2014

Vikalpa: The Journal for Decision Makers

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Theoretically, stock dividends have no impact on financial position of the announcing company as net worth and total assets remain the same, though empirical evidence across the globe shows that markets react to stock dividend announcements. The present study analyses the market reaction pertaining to stock dividend decisions in the Indian context. Market reaction has been captured in terms of impact on returns, liquidity, and risk. The sample includes 51 ‘pure’ stock dividend announcements from January 1, 2002 to June 30, 2010. The study finds that the announcement of stock dividends induces an increase in the wealth of the shareholders in India. A consistent pattern of positive average abnormal returns during the pre-announcement window till the announcement day and a pattern of negative average abnormal returns during the post-announcement window have been observed. On cumulating these results, the shareholders of the companies that issued stock dividends gain significant returns. The justification for such results seems to be that the information about the stock dividends announcement reaches the investors prior to the decision date as it is manda-tory for the issuing company to inform the exchange (where it is listed) about the date of the board meeting. It has been observed that the companies usually inform the exchange seven days prior to the day of the board meeting. In most of the cases, the companies provide the agenda item information along with the board meeting date to the exchange. In such a situation, the moment this information about the agenda item is given to the exchange, this becomes public information and investors start reacting to it. The cumulative average abnormal return values over various size event windows depict that an investor can earn substantial returns if he purchases the shares on the day the news of board meeting (to announce stock dividends) comes to the market and sells them one day after the announcement day. The investor can also gain if the shares are purchased one day prior to the announcement day and are sold one day after the announcement day. The trading quantity reduces significantly immediately after these decisions are announced. On a short-term basis, the investors seem to perceive that the announcement of stock dividends provides signals about the firm's bright future prospects. This leads to a decline in trading quantity as investors, who own the shares at the time of announcement, prefer to hold the shares expecting an increase in their wealth in future. In the long-run, a marginally positive impact has been observed. The announcement of stock dividends reduces variability of returns in the short-run as well as in the long run, lending price stability to the stocks of the announcing companies.

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Is the stock dividend ex-day effect due to market microstructure?: Contrary evidence from Korea

Cited by 4 publications

References 21 publications

A Further Examination of the Price and Volatility Impact of Stock Dividends at Ex-Dates*

A Further Examination of the Price and Volatility Impact of Stock Dividends at Ex-Dates*

Investor overreaction and the ex-date price behavior of stock dividends: evidence from the Taiwan Stock Exchange

Market Reaction to Stock Dividends: Evidence from India

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