Empirical evidence of market reactions based on signaling theory in Indonesia stock exchange
Open Access
- 19 April 2019
- journal article
- Published by LLC CPC Business Perspectives in Investment Management and Financial Innovations
- Vol. 16 (2), 66-77
- https://doi.org/10.21511/imfi.16(2).2019.06
Abstract
Signaling theory assumes that it is necessary to signal investors to how they perceive company’s prospects. One of them is dividend announcements. The announcement of dividends is predicted to be a signal for investors in the investment decision making process. This study aims to determine and analyze the effect of dividend announcements, both increases and decreases in dividends, on stock returns. This study is intended to find empirical evidence about market reactions based on signaling theory in Indonesia Stock Exchange on the period 2017. The analysis of this study uses the event study method and hypothesis testing carried out using different test paired sample t-test. The results of this study prove that the market reacts to the announcement of dividends. The market reaction is indicated by the value of abnormal returns, namely abnormal returns in the positive direction when the announcement of dividend increased and abnormal returns in the negative direction when the announcement of dividend decreased. The value of abnormal returns in a positive direction reflects the company’s performance in good condition, and vice versa. This result indicates that dividend announcements are a signal and contain information relevant to investors in the investment decision making process.Keywords
This publication has 11 references indexed in Scilit:
- Funding acquisition drivers for new venture firms: Diminishing value of human capital signals in early rounds of fundingProblems and Perspectives in Management, 2019
- ABILITY OF NET INCOME IN PREDICTING DIVIDEND YIELD: OPERATING CASH FLOW AS A MODERATING VARIABLEArchives of Business Research, 2018
- The Analysis of Dividend Announcement Impact on Stock Prices of Baltic CompaniesCentral European Business Review, 2017
- The Signaling Effect of Corporate Social Responsibility in Emerging EconomiesJournal of Business Ethics, 2014
- Dividend Policy from the Signaling Perspective and its Effects on Information Asymmetry among Management and InvestorsResearch Journal of Applied Sciences, Engineering and Technolog, 2013
- A Discussion on the Signaling Hypothesis of Dividend PolicyThe Open Business Journal, 2012
- Impacts of Dividend Announcement on Stock ReturnProcedia - Social and Behavioral Sciences, 2012
- Effect of Dividend on Stock Price in Emerging Stock Market: A Study on the Listed Private Commercial Banks in DSEInternational Journal of Economics and Finance, 2010
- THE EFFECTS OF THE ANNOUNCEMENTS OF DIVIDEND INCREASES ON STOCK RETURN VOLATILITY: THE EVIDENCE FROM THE OPTIONS MARKETJournal of Business Finance & Accounting, 1993
- Dividend Policy, Growth, and the Valuation of SharesThe Journal of Business, 1961