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

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  • Andrei Anghel

    ()

  • Tudor Cristiana

    () (The Academy of Economic Studies in Bucharest, AFER)

Abstract

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.

Suggested Citation

  • Andrei Anghel & Tudor Cristiana, 2013. "Investors' Dividend Preference On The Romanian Equity Market: A Cross-Sectional Empirical Investigation," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 61-69, December.
  • Handle: RePEc:ora:journl:v:1:y:2013:i:2:p:61-69
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    File URL: http://anale.steconomiceuoradea.ro/volume/2013/n2/006.pdf
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    References listed on IDEAS

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    1. Kothari, S. P. & Shanken, Jay, 1997. "Book-to-market, dividend yield, and expected market returns: A time-series analysis," Journal of Financial Economics, Elsevier, vol. 44(2), pages 169-203, May.
    2. Michaely, Roni, 1991. " Ex-dividend Day Stock Price Behavior: The Case of the 1986 Tax Reform Act," Journal of Finance, American Finance Association, vol. 46(3), pages 845-859, July.
    3. Lang, Mark H. & Shackelford, Douglas A., 2000. "Capitalization of capital gains taxes: evidence from stock price reactions to the 1997 rate reduction," Journal of Public Economics, Elsevier, vol. 76(1), pages 69-85, April.
    4. Goetzmann, William Nelson & Jorion, Philippe, 1993. " Testing the Predictive Power of Dividend Yields," Journal of Finance, American Finance Association, vol. 48(2), pages 663-679, June.
    5. Chen, Hung-Ling & Chow, Edward H. & Shiu, Cheng-Yi, 2013. "Ex-dividend prices and investor trades: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 39-65.
    6. Lasfer, M. Ameziane, 1996. "Taxes and dividends: The UK evidence," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 455-472, April.
    7. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    8. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
    9. Kathryn L. Dewenter & Vincent A. Warther, 1998. "Dividends, Asymmetric Information, and Agency Conflicts: Evidence from a Comparison of the Dividend Policies of Japanese and U.S. Firms," Journal of Finance, American Finance Association, vol. 53(3), pages 879-904, June.
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    More about this item

    Keywords

    dividend policy; ex-dividend date; abnormal returns; dividend preference; Bucharest Stock Exchange;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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