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Analysis of the Share Price Reaction to Announcements of Dividend Payments

Student: Sergey Krasheninnikov

Supervisor: Elena Rogova

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

The announcement of dividends is considered one of the key areas of the financial policy of the organization. The basis of the dividend policy is the decision, for example, whether to distribute profits to shareholders in the form of dividends or to keep it in the form of retained earnings. The dividend policy adopted by the company is of practical importance for everyone, whether it is a manager or interested parties of the organization. Due to the importance of the topic and the insufficiently developed research on dividend policy in Russia, the main goal of this work is to assess the market reaction to information on dividend payments made by Russian companies. An event in this study is the announcement of dividend payments by Russian companies. The main criterion for the selection of companies was their quotation on the electronic resource of the Moscow Exchange (MOEX). For each company, a database was uploaded with announcements of dividend payments for the period from 2014 to 2919 using the Thomson Reuters Refinitive resource. Ultimately, the sample contained 160 companies and, accordingly, 834 announcements of dividend payments. It is worth noting that the sample contained companies for which information was found on the fact of payment of dividends and daily stock trading was carried out. In addition, financial companies were excluded from the sample, due to the peculiarities in the formation of financial statements. After cleaning the sample, the total number of companies was 130, and the number of announcements was 655. An analysis conducted at the general portfolio level, increasing dividends, reducing dividends and levels unchanged showed that AAR on the day of the event is very high in each case. This may be due to the fact that information on the payment of dividends is immediately reflected in the share price. However, there are a few days in the valuation window showing that the market reacted before the actual dividend announcement and after the actual dividend announcement. These are not significant figures. Thus, we can conclude that, on average, the Russian capital market is semi-efficient after announcing the payment of dividends in cash. In general, the results show that the Russian stock exchange has significant informational content on dividend announcements. Investors see dividend announcements as good news. In addition, the results of this study confirmed that, on average, the stock market is effectively adapting to new dividend information.

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