Signaling With Mandatory Dividends: The Case of the Greek Stock Market

26 Pages Posted: 7 May 2007

See all articles by Panagiotis Asimakopoulos

Panagiotis Asimakopoulos

Loughborough University - School of Business and Economics; University of Piraeus

Costas Lambrinoudakis

University of Leeds - Leeds University Business School (LUBS)

Nikolaos Tsangarakis

University of Piraeus

Emmanuel D. Tsiritakis

University of Piraeus

Date Written: March 13, 2007

Abstract

We explore the effect of dividend announcements on stock market returns in the context of an event study. Our sample consists of firms paying the minimum required dividend and firms paying above the required minimum. In Greece, tax wise, dividends are treated equally with capital gains and corporate management is controlled by major shareholders to a large extend. Controlling for managerial moral hazard and the degree of back- and frontloading of the managerial compensation scheme, our theoretical model predicts that with known assets in place and asymmetric information on reinvestment prospects, unexpected dividend increases result in negative abnormal returns. Also, the higher the expectations of investors about reinvestment prospects, the lesser the impact on the stock price when firms announce the minimum required dividend. These theoretical predictions are corroborated from our empirical findings. Announcements when minimum dividend is paid have no signaling effect providing prima facie evidence that dividends contain new information not embedded in contemporaneous earnings announcements.

Keywords: Cash dividends, dividend signaling, asymmetric information

JEL Classification: D82, D84, G14, G35

Suggested Citation

Asimakopoulos, Panagiotis and Lambrinoudakis, Costas and Tsangarakis, Nikolaos and Tsiritakis, Emmanuel D., Signaling With Mandatory Dividends: The Case of the Greek Stock Market (March 13, 2007). Available at SSRN: https://ssrn.com/abstract=984445 or http://dx.doi.org/10.2139/ssrn.984445

Panagiotis Asimakopoulos

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Costas Lambrinoudakis

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

Nikolaos Tsangarakis

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Emmanuel D. Tsiritakis (Contact Author)

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
00302104142187 (Phone)

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