Stock market reaction to dividend surprises: Evidence from Russia

Abstract

The aim of this study is to empirically investigate an average reaction of emerging market of Russia to dividend surprises on the post-crisis period 2010-2014. Traditionally, unexpected dividend component has been measured in relation to the "naive" model, which assumes that market players expect dividend levels to remain the same from one time period to another. The study proposes different, rarely applied in the dividend announcements literature analysts' expectations-based approach to measure unexpected component of a dividend announcement. As a proxy for dividend surprise the difference between the actual dividend and the consensus analyst forecast is used. The research was conducted using event study methodology on the sample of Russian public companies, which regularly pay dividends. Obtained results of the study provide the grounds to make conclusions about the fact that Russian market on average reacts negatively to both good and bad dividend surprises. In this research the results are discussed from the point of view of markets efficiency, behavioral finance, economic and legal issues. The results of the study are of practical importance from the point of view of making investment decisions by the market players as well as from the side of the companies, which along with other factors should take into account market reaction when deciding upon dividend payments and enhancing their dividend policies.