Stock Price Reactions to Dividend Announcements: Evidence from Russia

This paper analyses stock market reaction to dividend announcements using dividend surprise model. Review and systematization of existing theoretical and empirical studies is presented and used as a basis for hypotheses formulation. To measure the effect of dividend announcements as captured by abnormal returns around announcement dates, event study was conducted on a sample of 288 announcements made by 39 Russian companies throughout 2007-2016. Share prices reaction to dividend announcement was examined on industry level, for periods of financial crises (namely, 2008-2009 and 2014-2015), and for stocks traded on RTS and depositary receipts traded on LSE/NYSE. Results showed that investors basically take negatively lower than expected dividends, while their reaction to unexpectedly high dividends varies depending on considered subgroup. Evidence from 2008-2009 crisis agreed with findings of Teplova (2011), and stock market reaction for oil & gas companies was identical to that described in Teplova (2008). Examination of 2014-2015 crisis demonstrated that market reacted to dividend announcement in accordance with signaling theory: good news was taken positively, bad news – vice versa, though only negative reaction was statistically significant.