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PRICE FORMATION AROUND CUM DATE
DIVIDEND ANNOUNCEMENT: EMPIRICAL
EVIDENCE IN INDONESIAN STOCK EXCHANGE
Budi Frensidy (e-mail: frensidy@gmail.com)
Lecturer Faculty of Economics, University of Indonesia (UI)
Mobile phone: 62-816-986-734
Irene Josephine (e-mail: irene_zakaria@yahoo.com)
Alumnae of Master of Management from Esa Unggul University (UEU)
Ignatius Roni Setyawan* (e-mail: ignronis@gmail.com)
Lecturer Faculty of Economics, Tarumanagara University (UNTAR)
Mobile phone: 62-817-418-5000
----------------------------------------
** Contact author
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Abstract
This research aim is to prove there a change in abnormal
returns around the announcement date of the cum date dividend date
and price changes around the announcement date. The population
studied is the company announced a dividend for the period 2007 -
2012, consists of 15 companies that successive 3-year reported
operating income, cash dividends during the 11 days of observation.
Testing of the event study on the information content of the cum
date dividend announcement is found that it contains no significant
information on cum date dividend announcement, and found no
significant negative information content one day after the cum date
dividend announcement. Results of this study still found the
significant abnormal returns around the dividend announcement.
Regression testing ask price, bid price, and the days before and after
the dividend announcement to the stock price was found that the price
formation is not influenced by the dividend announcement, but they
are influenced by the ask and the bid prices, which implies there is an
effort of investors to maximize capital gains by making the selling and
purchasing of certain stocks.
Keywords: cum date, event study, abnormal return, price, ask price,
bid price.
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1. INTRODUCTION
Generally stock investments made by investors in companies with good prospects are
reflected in high stock price. In order to get closer to achieving the investment objectives, the
investor will conduct sell (ask) and buy (bid) actions for the stocks in the portfolio
respectively. Olsson (2005) declared the action of buying and selling for the stocks by the
investors conducted by using the event information (event study) as a basis for looking that
whether or not abnormal profit (see also to abnormal returns).
According to Liu, et al. (2008) abnormal returns will generally occur at the day range
ahead of a strategic activities of issuers (listed companies) will be performed. Strategic
activities of the listed companies i.e. the corporate action is often perceived by investors as
the company's efforts to improve its liquidity. Because liquidity is often considered as the
short term income for investors, they will compete to obtain the information related to the
issuer's corporate action. One of the most anticipated corporate action is the dividend
announcement. The dividend announcement will be the good news signal for investors
because the decision of dividends distribution by listed companies will be considered as the
increasing of company's performance.
Ahead of the dividend announcement, it will arise the several of investor reaction.
The several of investor reactions that occur before and after the dividend announcement will
show the differences in expectations of the investors themselves. Nurhadi (2008) states that
there are two types of investor's i.e. rational investors and non rational investors. Rational
investors (generally the "big players") will have a long term orientation and still considers
dividends as a major part of their yield. Rational investors will not likely pursue acquisition
of information on the agenda of the dividend announcement. This is because rational
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investors are more informed about the dividend announcement from each their trader as
compensation for the amount of investment that has been made to them.
Dasilas and Sergios (2011) stated non rational investors (generally "small players")
would have less information acquisition in the agenda of the dividend announcement. They
will not receive compensation information from traders to remember not so much investment
is already running. In order to remain focused on achieving the investment objectives, then
they will take advantage of alternative sources of information made by the stock analyst.
Alternative sources of information are usually a graphical trend such as Dividend per share
(DPS) and the typical of dividend policy. The DPS trend information is used to predict future
stock market prices so that the target capital gain will be predicted well. While the typical of
dividend policy will be used to predict the cash flow pattern that will underpin the amount of
DPS. On the basis of differences in the interests of rational and non rational investors related
to the dividend announcement and subsequent effects that often occur, the authors propose
two important research questions that is: First, whether there is an abnormal return around
the dividend announcement. Second, whether the price will change around that event.
2. LITERATURE REVIEW
2.1. Market Reaction
Share price illustrates the general information that is open, available and provided by
the company to be processed by investors. Analysis of profit and dividend is commonly used
by investors. This sparked hope of advantage price earnings phenomenon as puzzling
phenomenon where the effects associated with a small company [Akbar and Habib (2010)].
The company may be a small company in the event that market sentiment while stock prices
fell sharply. Or otherwise market experienced sharp losses because it is too high expectations
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for growth company and too pessimistic expectations of a small company, and when those
expectations corrected by the performance of small good companies and the growth firms.
2.2. Investor Behavior
Investor behavior pattern is different, there are like risk, the risk enthusiasts can drive
the market for non rational act led the market to act sentiment. The state supports the
statement of the greatest enemies of the business itself is the investor. However, investor
confidence can be turned against itself. The main concern of investors who do not like risk is
to minimize risk (risk) to maximize return (return) but is willing to accept a higher risk for
the sake of profit above the average. Surely the existence of non rational investors is not in
themselves cause markets to be inefficient.
2.3. Event Studies and Efficient Market Hypothesis
According Capstaff, et. al. (2004) is important for investors to observe events that can
change the price, because an efficient market to react quickly and accurately to achieve a new
equilibrium price which fully reflects the information available. The general approach used is
abnormal return. Abnormal return measurement method commonly used is to reduce the real
return to the normal return. Return to normal is the expected return or the return expected by
investors. The essence of efficient markets is the rapid reaction to changing markets
accurately price long into the new price to be accepted by the market. It is difficult for
investors to earn abnormal returns. Fama states would be an efficient market information
system, if the prices of the securities act as if everyone observes the information system. "The
market is efficient with respect to some specified information system, if and only if security
prices act as if everyone observes the information system" This means there is no market
participants will enjoy the abnormal return in an efficient market.
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2.4. Signaling Theory
Signaling Theory expressed a positive relationship between the asymmetry of
information and the dividend announcement. Signal indicator advantage that is often sent by
the company to the market, but unfortunately not all investors have equal access to the
information signal. Positive information signal indicates when it is declared provide
significant abnormal return to the market in the sense that no information content. The
opposite is true for negative information signal. Abnormal return for a group of investors
reinforce the notion that information asymmetry will strengthen the reaction because the
agenda is declared.
2.5. Theory of Demand & Supply
Theory of demand is the amount of goods or services that consumers are willing and
able to buy for a certain period when certain economic conditions. The time period can be a
period of daily, monthly or yearly. Depending on expectations demand conditions and the
availability of goods. The value of goods depends on its usefulness. Demand also depends on
the price of the goods itself, the price of other goods, consumer incomes or predictions of the
future. The law of demand more and more demand if the lower the price of an item,
otherwise the less demand for goods when prices higher. Investors want to buy at lower
prices, in the hope of benefit when they are reselling.
The theory of supply is the company's ability to offer a certain item at a certain price
within a certain period. The offer will be reduced when rates go down, or if does not meet the
desired profit. Offer price is determined by the item itself, the price of other goods costs and
the benefits to be obtained. In the stock market can offer in the form of bids and bid, based on
the principle of time priority and price priority, according hallmark BEI as order-driven
market. Price priority means an order to buy at a purchase price (bid price) will get the
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highest priority for the primary can be customized with sell orders at the sale price (offer
price or ask price) lows. Time priority means the order at the bid price and the offer price
(ask) the same, then do the bid and offer first will get priority to be adjusted in advance with
the opposite transaction.
3. RESEARCH METHODOLOGY
3.1. Framework Research
Studies events or residual analysis or testing performance index abnormal or testing
the market reaction to the event, or an event or announcement information, where the event is
accepted by the market as a surprise or something that is not expected and the market is made
to react with shock that which can be seen through the do not return to normal or abnormal
return. If this is the case where there are abnormal returns through the shock of the event, it
can be said that the event contains useful information for the market to make decisions
quickly, why, because the markets see the new value to change the value of the company of
the content of the information that was discovered by market.
Based on Figure 1 on the following page, it can be explained pace the market reacted
to absorb information announced events are testing the market efficiency of the content of the
information published, related to the efficiency of the market. Efficient market information
would quickly react to information announced by the company and quickly perform analysis
and make a decision to buy or sell action, as seen through the abnormal return is absorbed
investor to get a new price equilibrium.
An increase in the share price, although not significantly describe expectations for the
benefits to be obtained by investors. The hope of gains seen at the ask price and the bid price.
Investors certainly offer a high price in the hope of obtaining capital gains. Investors bid a
low price in the hope can make a profit when selling their shares back. Price formation
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caused by supply sales price and the purchase price in about a day and a day after the
announcement of the dividend in the form of increase in the bid price or demand price
reductions indirectly describe the market reaction to the announcement cum dividend date.
The announcement has been published widely and is known by all investors is the last day
investors can buy shares and still be able to receive dividends, beyond the day the investor
does not have the right to participate in dividends that have been announced by the company,
it is natural when there are abnormal returns are not significant but change the price
formation mechanism of the new shares through the ask price and the bid price in about a day
and a day after the announcement.
Figure 1. Conceptual Framework
Dividend Announcement Event
Information Content Examination
There is No
abnormal return
There is
Abnormal Return
There is no
Market Reaction
There is
Market Reaction
Y = Stock
Price
X
1
= Ask Price X2 = Bid Price
D1 = Day before Dividend
Announcement
(
Cu
m
-Date
)
D2 = Day after Dividend
Announcement (Cum-Date)
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3.2. Research Hypothesis
The research hypothesis is a temporary answer or provisional estimates of the
proposed research titles:
H1 : There was a significant abnormal return around the announcement date of dividend
increases.
H2 : Price change around the announcement date.
3.3. Operational Definition and Measurement of Variables
3.3.1. Daily Return to the Company
Daily return to the company is the difference in price (capital gain or capital loss) of
securities to the previous day's price. Daily return the company by measuring:
Pi, t - Pi,t-1
R i,t = ----------------------------- ............................... (1)
Pi,t - 1
Description:
Ri, t = Return the actual stock i on day t
Pi, t = Price stock i on day t
Pi,t-1 = Price share i on the previous day (t-1)
3.3.2. Return Market Index
Return market index is a calculation of expected return, is used daily stock market
price by using the size of the Composite Stock Price Index (CSPI) about the dividend
announcement. Return market index with a way of measuring:
JCIt - JCIt-1
Rm,t = --------------------------- .................................... (2)
JCIt-1
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Description:
Rm,t = Market Return on day t
JCIt = Composite Stock Price Index on day t
JCIt-1 = Composite Stock Price Index on the previous day
3.3.3. Abnormal Return
Abnormal return is the difference between the actual return with the return to normal.
Expected Return is also called normal return assuming if the event will not occur. Calculation
of expected return using a model compliance market (market-adjusted model). Basic use of
the model-compliance market (market-adjusted model) is due to the use of this model no
longer need to use the estimation period to establish the model estimation and assumptions of
the model compliance market (market-adjusted model) that the estimated return market index
is the estimated return of the best. Abnormal return by way of measure:
ARi t = Ri,t - E (R) i, t ........................................... (3)
Description
ARi,t = Abnormal return stock i on day t
Ri,t = Actual Return stock i on day t
E(R)i,t = Expected Return stock i on day t
3.4. Data
The data is the company that announced a dividend during the period 2007 - 2012
with criteria: profit 3 years and distribute cash dividend increase of 3 consecutive years.
3.5. Analysis Method Hypothesis Testing
3.5.1. Comparison Test using Different Test
Different test average is used to look at differences in average abnormal return before,
during and after the dividend announcement to test H1 using instruments t-test was
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significant at level of 10 %, t-statistics is greater than t-table then H1 will be accepted
where there is abnormal return or significant level is lower than 0.10 therefore we accept H1.
3.5.2. Multiple Regression Analysis
In this study we are using multiple regression equation to get the effect of independent
variables i.e. Ask Price (At), Bid Price (Bt), Dummy 1 (D1) to measure the day before the
announcement of dividends and Dummy 2 (D2) to measure the day after the announcement
of the dividend toward on the dependent variable i.e. share price (Pt). The model is
formulated as follow:
Pt = α0 + α1At + α2D1 + α3D2 + ε i,t ............................ (4)
Pt = β0 + β1Bt + β2D1 + β3D2 + ε i,t ........................... .. (5)
Description:
Pt = Price t
α0, β0 = Intercept
α1, ....... β3 = Regression Coefficients
At = Ask Price t
Bt = Bid Price t
D1 = Dummy 1 (the day before the dividend distribution)
D2 = Dummy 2 (the day after the dividend distribution)
The 2nd alternative hypothesis would be accepted if the regression coefficients α1,….,
β3 influence significantly on Pt. In this case the most significant at the expected minimum
level of 10% is the coefficient α1 and β1 as the coefficient ask price and the bid price.
4. RESULTS AND DISCUSSION
4.1. Abnormal changes Return Announcement Regarding Dividend
From the results of testing 15 selected listed firms in table 1 showed that the average
abnormal return of the period of five events before to five days after the announcement of the
fifth day after the announcement is no different to zero. The market reacted negatively
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significant five days before the announcement, 1 and 3 days after the dividend
announcement. While the market reacted positively on only 1 day before and one day after
the dividend announcement.
Table 1. Change of Abnormal Return around Dividend Announcement
Day AAR CAAR t-statistics
of AAR
Sig.
(2-tailed) Sig. Information
Content
-5 -0.0014 -0.0014 -1.8990* 0.064 Significant Exist
-4 0.0044 0.003 0.8970 0.375 Not significant None
-3 -0.0004
0.0026
0.1600 0.874 Not significant None
-2 0.0000 0.0026 -1.2260 0.226
Not significant
None
-1 0.0033 0.0059 -1.8700* 0.067 Significant
Exist
0 0.0002 0.0061 0.3680 0.714 Not significant
None
1 -0.0177 -0.0116 -2.3590** 0.022 Significant
Exist
2 -0.0003 -0.0119 -1.5000 0.882
Not significant
None
3 -0.0109 -0.0228 -1.9830* 0.054 Significant
Exist
4 0.0009 -0.0219 -0.6220 0.537
Not significant
None
5 0.0028 -0.0191 -1.2920 0.202
Not significant
None
***: Significant at level α = 1% ** : Significant at level α = 5 % * : Significant at level α = 10% 
From the test results above, the alternative hypothesis (H1) is still accepted as
abnormal return is still happening around the announcement date of the dividend is 5 and 1
day prior to the announcement as well as 1 and 3 days after the announcement. It still proves
the advantage gained more than cum dividend announcement date. The information content
of dividend announcement does not provide a significant advantage over the assumption of
efficient market information, all have received the information it is declared that there is no
chance to get more profit. Increased dividend announcement information known by every
investor, so that no one can enjoy the abnormal return. This is consistent with the efficient
market hypothesis, an efficient market for an information system, then no one will enjoy
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more benefits. Analysis of stock prices, the selling price and the purchase price, with a
realistic look to the price of the sale price and the purchase price, which price should be
located between the selling price and the purchase price to see if the price is determined by
the announcement of a dividend or other causes.
Cum dividend announcement date is already known by the market and together has
received the announcement cum date, then the assumption will be the presence of asymmetric
information will not occur. This is evidenced during the observation period before and after
the announcement contained the information content. Significant is the content of the
information contained in the one day before and one day after the dividend announcement.
Market gains no significant abnormal return of the observation period cum dividend
announcement date. From t test proved significant result i.e. no information content on day
one after the announcement of dividend distribution. From the test results above, the
alternative hypothesis (H1) who suspect that a significant abnormal returns around the
announcement date of the dividend increase is acceptable, because it is proven there are more
advantages derived from cum dividend announcement date. Still have a significant abnormal
return so H1 which in theory states that if the dividend announcement has been jointly
accepted, then there is still opportunity for investors to gain significant abnormal returns
around the announcement date of dividend increases.
The information content of dividend announcement does not fully provide more
significant gains can be explained by the theory of efficient information market, all investors
have received a dividend announcement information so there is no chance to get more profit.
Increased dividend announcement information known by every investor, so that no one can
enjoy the abnormal return. Explained by the theory of the efficient market hypothesis, an
efficient market for an information system, then there will be nothing that will enjoy more
benefits. Increased dividend announcement information known by every investor, so that no
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one can enjoy the abnormal return. Explained by the theory of the efficient market
hypothesis, an efficient market for an information system, then there will be nothing that will
enjoy more amounts of the benefits. Cum date dividend announcement was not favored by
the market seen from abnormal negative return one day after the dividend announcement cum
date that the market does not like cum dividend announcement date. Also visible is the
phenomenon of making a profit through short term opportunities, where traders can buy
shares on the cum date and sell it after the payment to enjoy the dividends and capital gains.
4.2. Ask Price Changes Regarding Announcement of Dividend
Corresponding tables 2 and 3 below, the regression analysis model that has a value of
R square of 0.960 which means the selling price (ask price) can explain the price by 96% and
the remaining 4% is explained by other factors, economic conditions, political, fundamental,
level inflation and others. The model H2 accepts the alternative hypothesis that the alleged
price change around the announcement date.
Table 2. SPSS output from R -Square Price, Ask Price, Five Days Before and After
Dividend Announcement
Model R R Square Adjusted R
Square
Std. Error of
the Estimate
1 .980a .960 .960 4132.69626
Table 3. SPSS output from Regression Model Analysis Price, Ask Price, Five Days
Before and After Dividend Announcement
Model Unstandardized
Coefficient
Standardized
Coefficient
t Sig.
B Std. Error Beta
(Constant) 1635.798 265.532 6.160 .000
Ask Price .711 .005 .980 131.415 .000
Days Before 46.439 387.968 .001 .120 .905
Days After -165.191 387.970 -.004 -.426 .670
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Regression analysis model can be described by the following equation:
Pt= 1635,798 + 0,711A1
***
+ 46,439D1 - 165,1916 D2
In model of Pt above it can be showed that influence the direction of the selling price
to the stock price significantly but not significant in time. Every increase in selling price (ask
price) of 1 point will raise the price of 0,711 points. The regression analysis model has a
significance value of 0.000 indicates the model can be used to predict future prices. The
model accepts the alternative hypothesis (H2) that the alleged price changes around the
announcement date. Results of regression test selling price of the shares obtained results is
determined by the price of the sale price, it is declared not generate significant abnormal
returns if the selling price is offered, and investors are not interested and do not have the
ability to buy.
4.3. Bid Price Changes Regarding Dividend Announcement
Corresponding tables 4 and 5 below the regression analysis model has a value of R-
square of 0.549 which means the purchase price (bid price) can explain prices by 54.9% and
the remaining 4.51% is explained by other factors outside the trade situation. The model of
H2 is accepted which means the alternative hypothesis that allegedly suspected of price
changes around the announcement date.
Table 4. SPSS output from R -Square Price, Bid Price, Five Days Before and After
Dividend Announcement
Model R R Square Adjusted R
Square
Std. Error of
the Estimate
1 .741a .549 .547 13852.81293
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Table 5. SPSS output from Regression Model Analysis Price, Ask Price, Five Days
Before and After Dividend Announcement
Model Unstandardized
Coefficient
Standardized
Coefficient
t Sig.
B Std.
Error
Beta
(Constant) 4445.852 886.610 5.014 .000
Bid Price .513 .017 .741 29.638 .000
Days Before 90.614 1300.473 .002 .070 .944
Days After -241.262 1300.475 -.006 -.186 .853
Regression analysis model can be described by the following equation:
Pt= 4445,852 + 0,513Bt*** + 90,614 D1 - 241,262D2
Regression analysis model above describes the purchase price affects the price the
same direction, each increase in the purchase price (bid price) at one point raise the price by
0.513 points. Significant influence on the price of the purchase price, the effect of the day or
the time is not significant to the price. The regression analysis model has a significance value
of 0.000 indicates the model can be used to predict future price and the value of R square of
0.549 which means the purchase price (bid price) can explain prices by 54.9% and the
remaining 4.51% is explained by other factors. Results of R square from the selling price is
about 0.96 which greater than R square about 0.549 from the purchase price. This indicates
that the reaction to the ask price (sell) more powerful than the purchase price (bid) in
influencing investor decisions while awaiting the announcement of the dividend.
4.4 Changes in Dividend Announcement Regarding Price Each Company
To strengthen the results of the second test alternative hypotheses (H2), the authors
also conducted a regression analysis Regression Price, Ask Price, Bid Price Day After Day
Around and Dividend Announcement for each company were sampled.
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Table 6. Regression Analysis Model from Ask Price, Bid Price and Days Before and
Days After Dividend Announcement on Price of Each Listed Firms
No Name of Listed
Firms
Variable
X
Un. Std.
Beta
Dummy 1
Coeff.
Dummy 2
Coeff.
Status
1 Sumarecon Ask 1.031*** -8.64* 9.69* Sell Price Position
Sumarecon Bid 0.954** 29.82 78.84 Buy Price Position
2 Indofood S.M Ask 0.956*** 64.14 35.36 Sell Price Position
Indofood S.M Bid 0.980*** 95.47* 17.84 Buy Price Position
3 Indocement Ask 1.019*** -248.98* -59.69 Sell Price Position
Indocement Bid 1.023*** -222.81* -77.43 Buy Price Position
4 Kalbe Ask 1.000** 8.333 -58.333 Sell Price Position
Kalbe Bid 0.779* 121.32 -112.89 Buy Price Position
5 Telkom Ask 0.836*** 40.64 -227.18 Sell Price Position
Telkom Bid 0.841*** 45.07 -221.08 Buy Price Position
6 Goodyear Ask 0.274*** 38.43 7.55 Sell Price Position
Goodyear Bid 0.265** -5.79 -22.39 Buy Price Position
7 Panin Sek. Ask 0.965*** -40.26 -74.85 Sell Price Position
Panin Sek Bid 1.002*** 45.05 -54.73 Buy Price Position
8 Trias Ask 1.009*** 14.94 12.55 Sell Price Position
Trias Bid 1.009*** 12.95 8.56 Buy Price Position
9 Delta Ask 0.708*** 124.19 -509.93 Sell Price Position
Delta Bid 0.191** 502.01 -2486.86 Buy Price Position
10 Jaya Real P Ask 0.502*** -2.37 24.86 Sell Price Position
Jaya Real P Bid 0.763*** 10.253 -6.53 Buy Price Position
11 Mandala M.F Ask 1.035*** 0.683 10.721 Sell Price Position
Mandala M.F Bid 1.059*** -1.879 7.761 Buy Price Position
12 Mayora Indah Ask 0.991*** 74.81 318.32** Sell Price Position
Mayora Indah Bid 0.996** 47.107 209.42 Buy Price Position
13 Pembangunan
Jaya Ancol
Ask 0.261 -8.26 -14.78 Sell Price Position
Pembangunan
Jaya Ancol
Bid 0.799*** -20.39 -56.88** Buy Price Position
14 Indo Tambang
R
Ask 1.003*** -345.39 -1067,34***
Sell Price Position
Indo Tambang
R
Bid 0.994*** -188.62 -967.35***
Buy Price Position
15 Surya Citra
Media
Ask 0.926*** 668.53** -710.68**
Sell Price Position
Surya Citra
Media
Bid 0.970*** 677.3** -621.04*
Buy Price Position
***: Significant at level α = 1% ** : Significant at level α = 5 % * : Significant at level α = 10% 
Analysis of the bid price, ask price and the stock price was found significant
differences in the effect of the sale price and the purchase price to the price, which the sales
price is more significant than the purchase price. The test results of the price analysis indicate
the acceptance of H2 stated that there are two companies whose predominant influence price
formation around the dividend announcement. That company is Surya Citra Media. All
independent variables namely the ask price, bid price and the dummy 1 (before the dividend
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announcement) and dummy 2 (after the dividend announcement) have an influence on market
prices. The 14 other issuers have only a partial effect on the ask price and the bid price by
some variation of the significance of the dummy 1 and dummy 2 to Mayora, Ancol,
Indocement, Delta. Indofood, Summarecon and so on.
5. CONCLUSIONS AND RECOMMENDATIONS
5.1. Conclusion
From the results of the discussion can be concluded still exist around the information
content of the cum dividend announcement date with significant abnormal returns on the day
before the dividend announcement. This indicates capture market opportunities to take
advantage of a moment. These results support the research Doddy and Jogiyanto (2003),
Sularso (2003) and Siaputra and Atmadja (2006) who found significant abnormal return,
around the announcement of the event date, which means the dividend announcement
contains useful information for investors. Cum dividend announcement date still contains
information for investors, because of the possibility of surprise factor has been reduced.
Investors have already received the dividend announcement date and the event has received
financial reports, which may have been used by investors in predicting the development of
the company in the future by conducting fundamental analysis.
The existence of significant abnormal return on the first day before the announcement
proves the existence of the information content and the market still accept it as good news.
Proving the theory of efficient market hypothesis which says that the market is efficient in
information, meaning all have received the information it is declared that there is no chance
to get more profit.
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5.2. Suggestion
From the conclusion of the study can be recommended:
a) The Company may utilize the Indonesian market has been towards an efficient
information through increased dividend announcement as a signal, the company has a
good performance, has been managed well and provide credible reporting, as a mutual
company to trust investors become shareholders.
b) Investors should consider and utilize cum dividend date announcement in buying and
selling shares in order to avoid losses, and considering the conditions of support and
resistance to increase the offer price to meet the desired profit.
c) Regulator namely BEI still requires the issuer to pay dividends to shareholders as a
form of their performance during the first years running. The obligation to pay
dividends has been done since the privatization of state-owned companies rolled out
early decades of the 2000s. Dividend announcement should not be seen as a signal
alone but rather as a mandate or obligations that must be met at the issuer's public
shareholders.
6. REFERENCES
Akbar, M. and B. H. Habib (2010), Reaction of Stock Prices to Dividend Announcements
and Market Efficiency in Pakistan, The Lahore Journal of Economics 15:1
(Summer 2010), pp.103-125.
Capstaff, J., K. Audun and A.P. Marshall (2004), Share Price Reaction to Dividend
Announcements : Empirical Evidence on the Signaling Model from The Oslo
Stock Exchange, Multinational Finance Journal Vol. 8. No.1, pp. 115-139.
Dasilas, A. and L. Stergios (2011), Stock Market Reaction to Dividend Announcements:
Evidence From The Greek Stock Market, International Review of Economics and
Finance Vol. 20, pp. 302-311.
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Doddy, S. and H.M. Jogiyanto (2003), Testing of Market Efficiency Forms Half Strong
Decision Analysis Dividend Increase Announcement, Indonesian Journal of
Accounting Research Vol 6, No 2, pp. 131 - 144.
Liu, Yi, S.H. Szewczyk and Z. Zaher (2008), Underreaction to Dividend Reductions and
Omissions, The Journal of Finance, Vol. LXIII, No. 2, April, pp. 987-1020.
Nurhadi, W.R. (2008), Dividend Policy Studies: Antecedents and Impact on Stock Price,
Journal of Management & Entrepreneurship, Vol 10, No.1, pp.1-17.
Olsson, R. (2005), Implications of Constant Growth of Abnormal Earnings in Perpetuity
for Equity Premia, Discount Rates, Earnings, Dividends, Book Values and Key
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Siaputra, L. and A.S. Atmadja (2006), Effect of Dividend Announcement On Stock Price
Change Before and After Ex-Dividend Date in the Jakarta Stock Exchange
(JSX), Journal of Accounting & Finance, Vol. 8, No.1, Mei 2006; pp. 71-77.
Sularso, R. A. (2003),Effect of Dividend Announcement On Stock Price Change
(Return) before and after the Ex-Dividend Date In Jakarta Stock Exchange (JSX),
Journal of Accounting & Finance Vol. 5, No.1,pp. 1-17.
... A study on the Nigerian Stock Exchange also supported the signaling hypothesis [19]. Furthermore significant abnormal returns have also be shown by other studies [20]. As the literature about the effect of dividend has been developed well theoretically, this puzzle needs to be more investigated and explained that why firms still pay out dividends as until now no consensus was found. ...
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Announcing dividend pay-out policy by a company will signals market firm’s future prospects and changes its stock prices according to dividend signalling theory. By analysis the effect of special dividend announcements for 5 companies listed in NASDAQ for the period of 2014-2018, this study investigates the stock price reactions to special dividend announcement for 40 days around the event and challenges dividend signalling theory. The empirical results calculated both in discrete and logarithmic forms. Only few disordered significant abnormal returns and average abnormal returns occurred according to the t-test. The results show that shareholders do not gain value from announcement of special dividend in NASDAQ stock exchange market. That Results indicated from adjusted market model in this research do not support dividend-signalling theory Hence do not confirm that the announcement of dividend has significant effect on price of shares. In general the results consistent with the Miller and Modigliani (1961) dividend irrelevance hypothesis.
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This study tests the semi-strong form of market efficiency by investigating the reaction of stock prices to dividend announcements. It analyzes cash, stock, and simultaneous cash and stock dividend announcements of 79 companies listed on the Karachi Stock Exchange from July 2004 to June 2007. Abnormal returns from the market model are evaluated for statistical significance using the t-test and Wilcoxon Signed Rank Test. The findings suggest negligible abnormal returns for cash dividend announcements. However, the average abnormal and cumulative average abnormal returns for stock and simultaneous cash and stock dividend announcements are mostly positive and statistically significant.
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We derive analytical formulas for the post-horizontal and asymptotic behavior of earnings, dividends, book value, and key financial ratios, as implied by the terminal value model of constant perpetual abnormal earnings growth. The implications of Claus and Thomas (2001) (CT) abnormal earnings growth forecasts for these quantities are examined and found reasonable. Analysis of the implicit functional relationships between the equity premium and the aforesaid quantities using CT's U.S. data reveals that a traditional premium of 8% implies 14% asymptotic growth in abnormal earnings, earnings, dividends and book value, and equally extreme asymptotic return-on-equity, price-to-earnings and price-to-book ratios.
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This study tests the signaling theory of dividends by investigating the stock price reaction to dividend announcements on the Oslo Stock Exchange (OSE), and subsequent changes in the cash flows of the firms involved. This paper adds to existing evidence by examining the role of dividends in a market where the corporate ownership structure is notably different from the U.S. and the U.K., and where the motivation to use dividends as a signaling mechanism appears to be stronger. The results indicate significant abnormal stock returns are associated with announcements of dividend changes. The results are robust to alternative models of dividend expectations, after controlling for the impact of earnings announcements, and are consistent across sub-periods in the sample. The stock market reaction is most pronounced for large, positive dividend announcements that are followed by permanent cash flow increases. This evidence provides modest support for the signaling theory of dividends in Norway, but it does not support the proposition that corporate ownership structure is an important influence on the use of dividends as a signaling mechanism (JEL: G32; G35).
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This study investigates the market reaction to cash dividend announcements for the period 2000–2004 employing data from the Athens Stock Exchange (ASE). In particular, the paper examines both the stock price and trading volume response to dividend distribution announcements. Dividend distributions in Greece demonstrate noticeable differences to those of the US, the UK and other developed markets. First, dividends in Greece are paid annually rather than quarterly or semi-annually. Second, the Greek corporate laws 2190/1920 and 148/1967 specifically designate the minimum amount for distribution from the taxed corporate profits. Third, neither tax on dividends nor on capital gains was imposed during the period under examination. Fourth, Greek listed firms are characterized by high ownership concentration where major owners are usually involved in management and therefore have less need for dividend announcements as an information source. Despite this neutralized information and tax environment, we document significant market reaction to dividend change announcements, lending support to the “information content of dividends hypothesis”.
Article
Using a sample of 2,337 cash dividend reduction or omission announcements over the 1927 to 1999 period, this study reports significant negative post-announcement long-term abnormal returns, which last 1 year only. However, this long-term abnormal performance is driven by the post-earnings-announcement drift. After controlling for the earnings performance and the skewness of buy-and-hold abnormal returns, there is no compelling evidence of a post-dividend-reduction or post-dividend-omission price drift. Copyright 2008 by The American Finance Association.
Testing of Market Efficiency Forms Half Strong Decision Analysis Dividend Increase Announcement
  • S Doddy
  • H M Jogiyanto
Doddy, S. and H.M. Jogiyanto (2003), Testing of Market Efficiency Forms Half Strong Decision Analysis Dividend Increase Announcement, Indonesian Journal of Accounting Research Vol 6, No 2, pp. 131 -144.
Dividend Policy Studies: Antecedents and Impact on Stock Price
  • W R Nurhadi
Nurhadi, W.R. (2008), Dividend Policy Studies: Antecedents and Impact on Stock Price, Journal of Management & Entrepreneurship, Vol 10, No.1, pp.1-17.
Effect of Dividend Announcement On Stock Price Change Before and After Ex-Dividend Date in the Jakarta Stock Exchange (JSX)
  • L Siaputra
  • A S Atmadja
Siaputra, L. and A.S. Atmadja (2006), Effect of Dividend Announcement On Stock Price Change Before and After Ex-Dividend Date in the Jakarta Stock Exchange (JSX), Journal of Accounting & Finance, Vol. 8, No.1, Mei 2006; pp. 71-77.
Effect of Dividend Announcement On Stock Price Change (Return) before and after the Ex-Dividend Date In Jakarta Stock Exchange (JSX)
  • R A Sularso
Sularso, R. A. (2003), Effect of Dividend Announcement On Stock Price Change (Return) before and after the Ex-Dividend Date In Jakarta Stock Exchange (JSX), Journal of Accounting & Finance Vol. 5, No.1,pp. 1-17.