Dividends and Abnormal Return: Can a Change in the Dividend Corporate Policy Influence the Stock’s Return?

Edoardo Toschi & Vito Fasano

Student thesis: Master thesis


The purpose of this thesis is to analyze the correlation between the abnormal returns and the dividend policy linked to the same security. The study will be addressed on an equity basket made up of the 500 largest capitalization companies known as S & P 500. The time span used will be that of the last twenty years in order to make our study current and possibly useful for future investigations. The analysis will include other determinants related to the business sphere in addition to the specific one concerning the main variables above mentioned, in order to make it more complete. Two points of view will be considered, managerial and investor. The first will focus on the use of the dividend policy as a tool for channeling certain information from the company to the stakeholders and at the same time as through these policies, they can try to manage their stock price volatility. The second is linked to the theory of behavioral finance and the clientele effect, underlining how investors with their way of acting different from the market logic (misbehaving) and with well-defined preferences regarding dividends, influence in a certain way the management on the definition of company dividend policies. The starting hypothesis is that there is a positive correlation between changes in the dividend policy and the generation of abnormal returns, pointing out that within the financial markets there is no perfect incorporation of information. All this will be investigated through two linear regressions based on a previous study by Baskin (1989). The results stemming from the analysis have been inconsistent with each other. Indeed the first regression has reported a positive correlation among the abnormal return and the variable related to the dividend. On the other hand, the second regression refuted our initial hypothesis, with a negative correlation. The results are undermined by the narrowness and incompleteness of the sample. Hence, our analysis can be discuss qualitatively and further research can be useful to demonstrate empirically how the behavior of investor affect the management’s decision concerning the definition of a dividend policy, and mostly, through a more complete sample and a more in-depth analysis, try to find another piece of the puzzle.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2018
Number of pages108