Abstract
This article analyzes the reactions of two emerging stock markets—Indian and Russian—to the dividend announcements of traded companies. To ensure a comparable macroeconomic environment for market players, we focus on a period of sustainable economic growth in both of the economies. The period 2010–2012 is selected for analysis since this is when both of the economies experienced growth in the aftermath of the global financial and economic crisis. The sample includes Indian and Russian companies actively traded on the national stock exchanges and that regularly paid dividends on common shares during the study period. An event study methodology was used to show that in contrast with the Indian market, the behavior of the Russian market partly contradicts the dividend signaling theory predictions. Specifically, in the Russian market, investors, on average, reacted negatively to announcements of increased, as well as decreased dividends. The article discusses the possible reasons for the revealed specifics in the market reaction in detail.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Akben-Selcuk, E., & Altiok-Yilmaz, A. (2010). Information content of dividends: Evidence from Istanbul stock exchange. International Business Research, 3(3), 126–132.
Chatterjee, C., & Dutta, P. (2017). Price behaviour around dividend announcements in the Indian equity market in the existence of corporate dividend tax. Global Business Review, 18(2), 402–415.
Dasilas, A., & Leventis, S. (2011). Stock market reaction to dividend announcements: Evidence from the Greek stock market. International Review of Economics & Finance, 20(2), 302–311.
Easterbrook, F. (1984). Two agency-cost explanations of dividends. American Economic Review, 74(4), 650–659.
Fama, E. (1991). Efficient capital markets-II. Journal of Finance, 46(5), 1575–1617.
Fama, E. (1998). Market efficiency, long-term returns, and behavioral finance. Journal of Financial Economics, 49(3), 283–306.
Fama, E., Fisher, L., Jensen, M. C., & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1–21.
Grullon, G., Michaely, R., & Swaminathan, B. (2002). Are dividend changes a sign of firm maturity? Journal of Business, 75(3), 387–424.
Hu, Z., & Ahmed, M. U. (2010). Dividend announcement effect on stock return: an event study on Shanghai stock exchange. In: Proceedings of the 2010 Second WRI global congress on intelligent systems (GCIS), 16–17 December 2010, Wuhan, China (Vol. 2, pp. 320–324). Washington, DC, USA: IEEE Computer Society.
Kadioglu, E., Telceken, N., & Ocal, N. (2015). Market reaction to dividend announcement: Evidence from Turkish stock market. International Business Research, 8(9), 83–94.
Karim, M. (2010). Announcement effect of dividend on the stock price of enlisted companies in developed countries: A comparative study between London stock exchange & New York stock exchange. Social Science Research Network. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1624363.
Kumar, S. (2017). New evidence on stock market reaction to dividend announcements in India. Research in International Business and Finance, 39(A), 327–337.
Lang, L., & Litzenberger, R. (1989). Dividend announcements—cash flow signaling vs. free cash flow hypothesis. Journal of Financial Economics, 24(1), 181–191.
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review, 46(2), 97–113.
MacKinlay, A. (1997). Event studies in economics and finance. Journal of Economic Literature, XXXV(1), 13–39.
McCluskey, T., Burton, B. M., Power, D. M., & Sinclair, C. D. (2006). Evidence on the Irish stock market’s reaction to dividend announcements. Applied Financial Economics, 16(8), 617–628.
Miller, M., & Modigliani, F. (1961). Dividend policy, growth and the valuation of shares. Journal of Business, 34(4), 411–433.
Miller, M., & Rock, K. (1985). Dividend policy under asymmetric information. Journal of Finance, 40(4), 1031–1051.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261–297.
Moneycontrol (2013) [Electronic Resource]. http://www.moneycontrol.com/. Accessed 10 Dec 2014.
Mrzygłód, U., & Nowak, S. (2017). Market reactions to dividends announcements and payouts. Empirical evidence from the warsaw stock exchange. Contemporary Economics, 11(2), 187–204.
Pan, R., Tang, X., Tan, Y., & Zhu, Q. (2014). The Chinese stock dividend puzzle. Emerging Markets Finance & Trade, 50(3), 178–195.
Perepeczo, A. (2014). Shareholders’ preferences, business cycles and market reactions to dividend announcements in public companies—Empirical evidence. Transformations in Business & Economics, 13(2B), 648–660.
Petit, R. (1972). Dividend announcements, security performance and capital market efficiency. Journal of Finance, 27, 993–1007.
Pradhan, R. P. (2018). Development of stock market and economic growth: The G-20 evidence. Eurasian Economic Review. https://doi.org/10.1007/s40822-018-0094-4 (forthcoming).
Pradhan, R. P., Arvin, M. B., & Bahmani, S. (2015). Causal nexus between economic growth, inflation, and stock market development: The case of OECD countries. Global Finance Journal, 27(July), 98–111.
Rogova, E. M., & Berdnikova, G. O. (2014). Russian stock market reaction to dividend announcements. Rossiiskii Zhurnal Menedzhmenta [Russian Management Journal], 12(4), 3–28 (in Russian).
Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle-income countries. World Development, 68(1), 66–81.
Sharma, R. (2011). Stock price behaviour around dividend announcements: An event study methodology. XIMB Journal of Management, 1, 23–32.
Sheikhbahaei, A., Osman, M. H. M., & Rahman, I. (2012). Information content in dividend announcements: A test of market efficiency in Malaysian market. International Business Research, 5(12), 38–45.
Taneem, Sh, & Yuce, A. (2011). Information content of dividend announcements: An investigation of the Indian stock market. International Business & Economics Research Journal, 10(5), 49–57.
Teplova, T. V. (2008). Impact of cash dividend payments on Russian companies’ market capitalization: Event study testing on Russians and world’s stock exchange. Audit i Finansovyj Analiz, 2, 1–15 (in Russian).
Teplova, T. V. (2011). The reaction of share prices on the cash dividend announcement: Signaling in the Russian market before and after the crisis. Finansovyj Menedzhment, 1, 13–25 (in Russian).
Vieira, E. (2011). Firm-specific factors and the market reaction to dividend change announcements: Evidence from Europe. Marmara Journal of European Studies, 19(1), 1–25.
Vo, X. V., Nguyen, H. H., & Pham, K. D. (2016). Financial structure and economic growth: The case of Vietnam. Eurasian Business Review, 6(2), 141–154.
Yoon, P. S., & Starks, L. T. (1995). Signaling, investment opportunities, and dividend announcements. Review of Financial Studies, 8(4), 995–1018.
Funding
Research has been conducted with financial support from the SPbU grant (project No. 16.23.1847.2015).
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Berezinets, I.V., Bulatova, L.A., Ilina, Y.B. et al. Reactions of emerging stock markets to dividend announcements during economic growth: evidence from India and Russia. Eurasian Econ Rev 9, 71–89 (2019). https://doi.org/10.1007/s40822-018-0111-7
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40822-018-0111-7