Investors' Dividend Preference On The Romanian Equity Market: A Cross-Sectional Empirical Investigation

The literature on dividend policy and its relationship to stock returns relies on two important concepts: information asymmetry and agency theory both of which suggesting that there should be a positive relationship between dividend changes and stock returns. In this paper, we investigate whether there is any preference among investors on the Romanian stock market for dividend paying stocks, as reflected by their abnormal return around certain key dates related to companiesâ€â"¢ dividend policies. To serve our purpose, we take three events related to the dividend policy for each of the 25 companies included in the BET-XT index, namely 1. The announcement date of the proposed dividend for the year 2011; 2. The General Shareholders Meeting date, a date when dividend distribution becomes certain ; 3. The Ex-dividend date. We cannot report that investors exhibit a preference for dividend paying companies during the investigated time period, but we find that among dividend paying companies there seems to exist a preference for the larger-dividend-paying companies and that this preference seems to manifest strongest between the announcement date and the General Shareholders Meeting date. We also analyze the relationship between dividend yields and the abnormal return for the dividend paying Romanian listed companies. We can report that for the period between dividend announcement and the General Shareholders Meeting there is a statistically significant positive correlation between the dividend yield and the subsequent stock return. Finally, another statistical significant relationship encountered in this research is the negative correlation between the yield of high-dividend-paying stocks and the stock return on the ex-dividend date.