Impact of Changes in Dividend Policy on Public Company Stock Prices

According to standard interpretation of the signal theory, the decision of management to pay dividends affects the market capitalization of business. The problem of way the dividend distribution affects stock prices is relevant because of the importance of the market capitalization management issue in corporate finance. The feature of this study lies, at first, in the application of the event study method to analysis of the reaction of market capitalization to the announcement of special one-time dividend distributions to owners, which are usually unexpected for the market and are not indicated in the regular dividend policy. In addition, this paper analyzes the impact of factors such as the financial leverage of the business, as well as the presence of the approved dividend policy on the way react in response to the announcement of the special dividend distribution. Chapter 1 of this work presents the results of studying the theory of the issue in the literature and scientific articles of Russian and foreign authors. In addition, it presents the formulation of the hypotheses of the study. Chapter 2 presents the methodology of the study and describes a sample of corporate events used for analysis. Chapter 3 presents empirical results of a study. In Conclusion, the results of the work are summarized. In particular, the results of hypotheses tests are described, as well as recommendations and conclusions that make up the practical significance of the study. The main findings of the study is the fact that the market positively perceives the signal in the form of announcement of a special dividend, which means that this method of profit distribution is effective in terms of the impact on the market capitalization of the company. However, in case of high financial leverage level the share price may decline in response to the announcement of a special dividend, which contradicts the main principle of corporate finance – maximizing the welfare of owners.