Share price reaction to dividend announcements: empirical evidence on the signalling model from the Oslo Stock Exchange

John Capstaff, Audun Klaeboe, Andrew P. Marshall

Research output: Contribution to journalArticle

Abstract

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).
LanguageEnglish
Pages115-139
Number of pages24
JournalMultinational Finance Journal
Volume8
Issue number1-2
Publication statusPublished - Mar 2004

Fingerprint

Stock exchange
Empirical evidence
Dividends
Share prices
Signaling model
Price reaction
Dividend announcements
Signaling theory
Cash flow
Ownership structure
Corporate ownership
Stock market reaction
Stock returns
Earnings announcements
Announcement
Norway
Alternative models
Stock price reaction

Keywords

  • dividend announcements
  • Oslo stock exchange
  • signaling
  • Norway

Cite this

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Share price reaction to dividend announcements: empirical evidence on the signalling model from the Oslo Stock Exchange. / Capstaff, John; Klaeboe, Audun; Marshall, Andrew P.

In: Multinational Finance Journal, Vol. 8, No. 1-2, 03.2004, p. 115-139.

Research output: Contribution to journalArticle

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