Do markets learn from experience? Price reaction to stock dividends in the Turkish market

Abstract

In this paper we provide an empirical analysis of the announcement and implementation of rights issues and stock dividends in the thinly traded Istanbul Stock Exchange. The efficiency of the Turkish market with respect to this information set is tested at different time horizons characterized by different development levels of the market. Evidence is detected of different price reactions for the different development phases of the market as well as for the board meeting and actual implementation information. As the market matures, neither the board meeting nor the actual implementation of stock dividends-rights offerings cause significant price reactions. Besides the traditional event study methodology, non-parametric tests such as sign and rank tests are also employed but are found to be unsuitable for this particular case.

Event-related GARCH: the impact of stock dividends in Turkey

“…This is consistent with the findings of Aydogan and Muradoglu (1998), who from a conventional event study methodology find no systematic price reactions around the announcement and payment of a number of stock dividends and rights issues on the ISE in the period 1988-93.…”

“…This has little to do with signaling, and everything to do with how high inflation impacts on the balance sheets of Turkish companies (see Aydogan and Muradoglu, 1998). Companies are obliged to revalue fixed assets each year by a factor close to the overall inflation rate, and this increase in value may be converted in whole or part to paid-in capital by means of the issue of stock dividends.…”

Market Reaction to Dividend Announcement: Evidence from Turkish Stock Market

“…This study differs from those of Aydoğan and Muradoğlu (1998), Muradoğlu and Aydoğan (2003), and Batchelor and Ortakçıoğlu (2003) in two ways: Firstly, this study provides evidence about the announcement effect of cash dividends by using a larger, more recent data set (2003 to 2015). Previous work on dividends in Turkey was undertaken when the economy was suffering from high inflation and when Borsa Istanbul was in its formative stage.…”

“…summarizes some other recent empirical studies analyzing market reaction to dividend around the dividend declaration date. Aydoğan and Muradoğlu (1998), Muradoğlu and Aydoğan (2003) and Batchelor and Orakçıoğlu (2003). All of these studies used data from the 1990s, and generally did not use exact declaration dates.…”

Dividend Changes and Future Profitability: Evidence from the Turkish Stock Market

“…A positive correlation was found between dividend changes and future profitability according to analyses made by Nissim and Ziv (2001), conducted using 100,666 dividends during the period 1963-1998, and Zhau and Ruland (2006, conducted using 40,968 dividends during the period 1950. Healy and Palepu (1988, conducted a study on distributing or withholding dividends for the period 1969-1989.…”