Abstract

This study investigates market reactions to cash dividend announcements by analyzing abnormal returns around the declaration date in Borsa Istanbul. The study applies a panel regression method to a data set including 902 announcement made by 118 companies during the period from 2003 to 2015. It is found that there is a significant, negative relationship between cash dividends per share and abnormal returns following the announcement of dividends. Thus, the results support the tax-clientele effect hypothesis. When a given company announces cash dividends, shareholders start to sell their holdings in order to avoid more taxation in the future; therefore, market prices decrease. Furthermore, the results suggest that there is no statistically significant information leakage prior to the announcement date, and it seems that the inefficiency of the market decreases over time as prices adapt to new information more quickly.

 

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