31 research outputs found
Investor sentiment and the market reaction to dividend news: European evidence
Purpose: This paper examines the effect of investor sentiment on the market reaction to dividend change announcements.
Design/methodology/approach: We use the European Economic Sentiment Indicator data, from Directorate General for Economic and Financial Affairs (DG ECFIN), as a proxy for investor sentiment and focus on the market reaction to dividend change announcements, using panel data methodology.
Findings: Using data from three European markets, our results indicate that the investor sentiment has some influence on the market reaction to dividend change announcements, for two of the three analysed markets. Globally, we find no evidence of investor sentiment influencing the market reaction to dividend change announcements for the Portuguese market. However, we find evidence that the positive share price reaction to dividend increases enlarges with sentiment, in the case of the UK markets, whereas the negative share price reaction to dividend decreases reduces with sentiment, in the French market.
Research limitations/implications: We have no access to dividend forecasts, so, our findings are based on naĂŻve dividend changes and not unexpected change dividends.
Originality/value: This paper offers some insights on the effect of investor sentiment on the market reaction to firms’ news, a strand of finance that is scarcely developed and contributes to the analysis of European markets that are in need of research. As the best of our knowledge, this is the first study to analyse the effect of investor sentiment on the market reaction to dividend news, in the context of European markets
Does the market reaction to dividend news is influenced by investor sentiment?
We analyse whether the investor sentiment affects the market reaction to dividend
change announcements. We use the European Economic Sentiment Indicator data, from
Directorate General for Economic and Financial Affairs (DG ECFIN), as a proxy for
investor sentiment and focus on the market reaction to dividend change announcements.
Our results indicate that the investor sentiment have some influence on the market
reaction to dividend change announcements, for two of the three analysed markets.
Globally, we find no evidence of investor sentiment influencing the market reaction to
dividend change announcements for the Portuguese market. However, we find evidence
that the positive share price reaction to dividend increases enlarges with sentiment, in
the case of the UK markets, whereas the negative share price reaction to dividend
decreases reduces with sentiment, in the French market
Are dividends disappearing? mixed evidence from Europe
Recent empirical studies reported the phenomenon of low propensity of firms to dividend payment, concluding that companies have become less likely to pay dividends. In addition, most of these studies claim that investors’ expectations regarding dividend payments also decreased.
We analyse the propensity to pay dividends in three European markets: Portugal, France and the UK. Although they are all European markets, they differ from each other for several reasons. Firstly, the UK is one of the largest European capital markets, whereas the French and Portuguese markets are smaller, especially Portugal. Additionally, these latter two markets are less intensively researched. Secondly, these countries differ in terms of ownership concentration. In Portugal and France ownership tends to be more concentrated than in the UK. Thirdly, Portugal and France are bank-based financing systems, whereas the UK is a market-based system. Finally, the legal rules covering protection of corporate shareholders are different in the three countries.
We find evidence of the decline of firms paying dividends in Portugal and in the UK, but not in France. Moreover, we find some evidence that firms that pay dividends tend to be the ones of larger size and higher profitability, but we find no evidence of a significant relation between a firm’s growth and dividend payments
What do we know about financial literacy? A literature review
This article provides a literature review about the dilemma of financial literacy. The individuals and families’ financial decision process is getting more vital in recent years. Given the increasingly risky and globalized markets, the actual context of global financial crisis and the continuous increasing in the complexity of financial products and services, individuals must be able to make well-informed and correct decisions. Consequently, higher levels of financial knowledge contribute to more extensive economic growth and development. However, it has been shown that, in global terms, the financial literacy present low values, which suggest the need of financial educational programs in the schools curricula. There is also evidence of a positive relationship between financial literacy and investment decisions, as well as retirement programs. Studies conducted to date suggest that there are socioeconomic conditions that influence the financial knowledge, attitudes and behaviours, such as age, gender, work experience, income and education level
Corporate dividend policies: survey evidence from finance directors in the UK and Portugal
This paper reports the empirical results of a questionnaire survey about corporate dividend policy addressed to finance directors of UK and Portuguese listed firms. Similar to other studies (for example, Brav et al., 2005 in the US and Dhanani, 2005 in the UK), we survey 313 finance f«directors in the UK and 48 in Portugal to examine their views of and understanding about the dividend decision in order to compare practice with theoretical propositions to be found in the literature. Our survey results demonstrate similarities in the responses from the UK and Portugal, but also substantive differences, particularly in respect of the interaction between dividend and investment decisions and views about the signalling consequences of dividends
Signalling with dividends? new evidence from Europe
According to the dividend signalling hypothesis, dividend change announcements
trigger share returns because they convey information about management’s assessment
on firms’ future prospects.
We analyse the classical assumptions of the dividend signalling hypothesis, using data
from three European countries. The evidence gives no support to a positive relation
between dividend change announcements and the market reaction for French firms, and
only weak support for the Portuguese and UK firms. After accounting for non-linearity
in the mean reversion process, the global results do not give support to the assumption
that dividend change announcements are positively related with future earnings
changes.
We also formulate two hypotheses in order to explore the window dressing phenomenon
and the maturity hypothesis, finding some evidence in favour of both, especially in the
UK market
A estrutura de capital das PME: evidĂŞncia no mercado PortuguĂŞs
A estrutura de capital das empresas tem constituĂdo, nas Ăşltimas dĂ©cadas, um dos temas de maior interesse na área financeira. Fruto deste interesse surgem, desde o artigo publicado por Modiglianni e Miller (1958), vários estudos e várias teorias aplicadas a este domĂnio, inicialmente generalizadas Ă s empresas de grande dimensĂŁo, e entretanto tambĂ©m aplicadas ao universo das PME.
O presente trabalho tem como objectivo investigar a estrutura de capital das PME portuguesas, além de verificar se as práticas empresariais permitem validar os argumentos propostos pelas teorias financeiras explicativas da estrutura de capital.
Baseados numa amostra de dados painel balanceada, para o perĂodo compreendido entre 2000 e 2005, os nossos resultados indicam que a teoria que melhor explica o comportamento das PME no que diz respeito Ă sua estrutura de capital, Ă© a Teoria da Pecking Order, que nos indica que as empresas preferem financiar-se, em primeiro lugar, com autofinanciamento, e sĂł depois recorrem a financiamento externo, atravĂ©s de capital alheio. Em Ăşltima instância, será equacionada a questĂŁo dos aumentos de capital
Lower propensity to pay dividends? new evidence from Europe
Recently, some empirical studies reported the phenomenon of the low propensity of
firms to dividend payment, concluding that companies have become less likely to pay
dividends. In addition, the major parts of these studies sustain the investors’
expectations regarding dividend payments also decreased.
We analyse the propensity to pay dividends in three European markets: Portugal, France
and the UK. Although they are all European markets, they are different from each other
for several reasons. Firstly, the UK is one of the most important European capital
markets, whereas the French and Portuguese markets are smaller, specially Portugal,
that is a very small market compared to other Western European markets. Additionally,
these two markets are less intensively researched. Secondly, we have differences in
these countries associated with the ownership of equity. In Portugal and France
ownership tends to be more concentrated than in the UK. Thirdly, Portugal and France
are bank-based system, whereas the UK is a market-based system. Finally, the legal
rules covering protection of corporate shareholders is different in the three countries.
While the UK is a country of Anglo-Saxon influence, the other two countries are
characterised by a continental influence.
We find evidence of the decline of firms paying dividends, except for the French
market. Moreover, we find evidence suggesting that the Portuguese market does not
have such a smoothing dividend policy like the US or the UK markets, but it has a more
volatile dividend policy, such as the case of the German market
The phenomenon of the adverse market reaction to dividend change announcements: new Eeidence from Europe
The dividend policy is one of the most debated topics in the finance literature.
According to the dividend signalling hypothesis, which has motivated a significant
amount of theoretical and empirical research, dividend change announcements trigger
share returns because they convey information about management’s assessment on
firms’ future prospects. Consequently, a dividend increase (decrease) should be
followed by an improvement (reduction) in a firm’s value.
Although there are empirical evidence supporting the positive relationship between
dividend change announcements and the subsequent share price reactions, some studies
have not supported this idea. Furthermore, several studies found evidence of a
significant percentage of cases where share prices reactions are opposite to the dividend
changes direction, like the works of Asquith and Mullins (1983), Benesh, Keown and
Pinkerton (1984), Born, Mozer and Officer (1988), Dhillon and Johnson (1994) Healy,
Hathorn and Kirch (1997), and, more recently, Vieira (2005).
We introduce a new approach to investigate the relationship between the market
reaction to dividend changes and future earnings changes with the purpose of
understanding why the market sometimes reacts negatively (positively) to dividend
increases (decreases). We find only weak evidence for the dividend information content
hypothesis. The Portuguese results suggest that the adverse market reaction to dividendchange announcements is basically due to the fact that the market does not understand
the signal given by firms though dividend change announcements. Moreover, we find
no evidence of the inverse signalling effect, except for the UK market. The results
suggest that the UK market investors have more capability to predict future earnings
than the investors of the Portuguese and the French markets
The effect of firm-specific factors on the market reaction to dividend change announcements: new evidence from Europe
The dividend policy is one of the most debated topics in the finance literature.
According to the dividend signalling hypothesis, which has motivated a significant
amount of theoretical and empirical research, dividend change announcements trigger
share returns because they convey information about management’s assessment on
firms’ future prospects. Consequently, a dividend increase (decrease) should be
followed by an improvement (reduction) in a firm’s value.
However, some studies have not supported the hypothesis of a positive relationship
between dividend change announcements, and the subsequent share price reaction, such
as the ones of Lang and Litzenberger (1989), Benartzi, Michaely and Thaler (1997),
Chen, Firth and Gao (2002), Abeyratna and Power (2002) and Vieira (2005).
Furthermore, some authors found evidence of a significant percentage of cases where
share prices reactions are opposite to the dividend changes direction, like the works of
Asquith and Mullins (1983), Benesh, Keown and Pinkerton (1984), Born, Mozer and
Officer (1988), Dhillon and Johnson (1994) Healy, Hathorn and Kirch (1997), and,
more recently, Vieira (2005).
Consequently, we try to identify firm-specific factors that contribute in explaining the
adverse market reaction to dividend change announcements. Globally, our evidence
suggests that only for the UK sample we have firm-specific factors influencing the
market reaction to dividend change announcements. We conclude that the UK firms
with a negative market reaction to dividend increase announcements have, on average,
higher size, lower earnings growth rate and lower debt to equity ratios