If Cash Dividend Announcements Affect The Stock Prices Of Companies Listed On The Palestine Exchange

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Abstract In this study, we used the event study methodology to examine if cash dividend announcements affect the stock prices of companies listed on the Palestine Exchange. We studied 62 events announced from 1/1/2006 to 31/12/2015. Appropriate statistical tests were used to examine if the cumulative abnormal return is statistically significant around the announcement day, namely, 10 days before and 10 days after the event day. Results reveal that statistically significant differences exist between cumulative abnormal returns and zero. Thus, investors could realize abnormal returns during the event window for the study period. The findings also indicate that a statistically significant negative relationship exists between dividend…show more content…
The distribution of profits are predicated on a few methods, the majority of which are in the form of cash or bonus shares or shares owned by companies in other companies being distributed in the form of goods produced by the company Nour (2003). However, it should also be pointed out that psychological factors are crucial vis-à-vis the method of distribution; shareholders are more inclined towards cash distribution, as they see it as an acceptable form of compensation from the risk they are obliged to bear from being the owner of stocks. The link between dividends and firm’s value and share price has been the subject of study for a few decades. However, the influence of dividends on the value firms’ value and price remains unresolved. Some studies pointed out that stock prices remain unaffected by the announcement of dividends (Sharma, 2011; Pan et al., 2014), while others reported otherwise, whether positively (Liu and Chi, 2014; Perepeczo, 2014) or negatively (Abbas, 2015; Mamun, 2013). Information signaling theory, the free cash flow hypothesis, and the dividend clientele effect hypothesis are the three major theories that explains the influence of dividend announcements upon share prices (Kadıoğlu et al., 2015; Nour, 2003). Event study is regarded as an important research tool in the context of economics and finance. It is entrenched in the capital markets for the analysis of events on stock prices. The study of an
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