Share Price Reaction to Dividend Announcements: Empirical Evidence on the Signaling Model from the Oslo Stock Exchange

John Capstaff (), Audun Klæboe and Andrew P. Marshall
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John Capstaff: University of Strathclyde, U.K.
Audun Klæboe: Nordea Bank, Norway
Andrew P. Marshall: University of Strathclyde, U.K.

Multinational Finance Journal, 2004, vol. 8, issue 1-2, 115-139

Abstract: This study tests the signaling theory of dividends by investigating the stock price reaction to dividend announcements on the Oslo Stock Exchange (OSE), and subsequent changes in the cash flows of the firms involved. This paper adds to existing evidence by examining the role of dividends in a market where the corporate ownership structure is notably different from the U.S. and the U.K., and where the motivation to use dividends as a signaling mechanism appears to be stronger. The results indicate significant abnormal stock returns are associated with announcements of dividend changes. The results are robust to alternative models of dividend expectations, after controlling for the impact of earnings announcements, and are consistent across sub-periods in the sample. The stock market reaction is most pronounced for large, positive dividend announcements that are followed by permanent cash flow increases. This evidence provides modest support for the signaling theory of dividends in Norway, but it does not support the proposition that corporate ownership structure is an important influence on the use of dividends as a signaling mechanism.

Keywords: dividend announcements, Oslo stock exchange; signaling (search for similar items in EconPapers)
JEL-codes: G32 G35 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:8:y:2004:i:1-2:p:115-139

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