Study on Dividend Policy: Antecedent and its Impact on Share Price

Abstract

Research BackgroundDividend announcement by a company is a signal to shareholders. Basically, managers and shareholders have different information, where managers have more complete information than shareholders. The shareholders will interpret the increase in dividend payments by the company, as the signal that management has a high cash flow forecast future (Black, 1976). Conversely, the decline in dividend payments interpreted as anticipation manager of the limited cash flow in the future. Lintner (1956) advocated the view that firms increase dividend payments only if the manager believes that these high dividend payments can be maintained in the future. ThisCreate PDF with GO2PDF for free, if you wish to remove this line, click here to buy Virtual PDF Printer 2 research was continued by Fama and Babiak (1968) showed support for the model developed by Lintner. Bhattacharya (1979) and Miller and Rock (1985) predicts that the dividend payment announcement containing information about the condition of cash flow that is in good company for current and future (Allen and Michaely, 2002).The study discusses the direct relationship between dividends and stock prices have been a lot done, but the results are still ambiguous (Jensen and Smith, 1984).Miller and Modigliani (1961)-hereinafter referred to as MM-argued that the assumption of perfect markets, rational behavior and perfect certainty, find the relationship that the value of the company and the current dividend policy is irrelevant. MM Research ignore that there is information that is not the same between the parties to a transaction. In fact, there is informational asymmetry, where the parties conducting the sales have more information about the company's condition compared to the potential investors. The presence of different information will encourage the role of dividends as a signal to outsiders (Dong, Robinson and Veld, 2005). Absence of significant influence of the dividend was also raised by Black and Scholes (1974). Meanwhile, Litzenberger and Ramaswamy (1979) in his research to include the finding that dividend taxes have a negative effect on stock price movements. This is because the tax on dividends is higher than the taxes imposed on capital gains, and tax on capital gains realized only when the transaction (Brigham and Daves, 2002). Bajaj and Vijh (1990) states that the impact of dividend changes on stock prices is large and the impact of dividend yield are stronger in small firms. On the other hand, Ammihud and Li (2002) Create PDF with GO2PDF for free, if you wish to remove this line, click here to buy Virtual PDF Printer (1984) states that it is difficult to explain the effect of dividend policy on stock price movements in isolation.In this research further discussed antecedents of dividend policy and its impact on stock prices. In addition to dividends, to examine other factors that influence stock prices, among others, is the investment opportunity set (Miller and Modigliani, 1961;Myers, 1977;Lang and Litzenberger, 1989;H...

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