The Impact of Dividend Policy on Shareholders
*We accept benefitted from the accessible comments of participants at the 1999 Banking Administration Association All-embracing Conference, captivated in Barcelona, Spain. The assay abetment of Tasoulla Spyrou, Pantelis Nikolaides, and Philio Demetriou is acquiescently acknowledged. This action was partly adjourned by a European Community MED-CAMPUS affairs assay grant.
(Multinational Accounts Journal, 2001, vol. 5, no.2, pp. 87–112) ©Multinational Accounts Society, a nonprofit corporation. All rights reserved. 1
Shareholder Abundance Furnishings of Allotment Policy
Changes in an Arising Banal Market: The
Case of Cyprus*
ALBA, Greece, and
Cardiff Business School, U.K.
University of Cyprus, Cyprus, and
University of Chicago, U.S.A.
University of Cyprus, Cyprus
This commodity examines the banal bazaar acknowledgment to announcements of banknote allotment increases and anniversary issues (stock dividends) in the arising banal bazaar of Cyprus. Both contest arm-twist decidedly absolute aberrant returns, in band with affirmation from developed banal markets. This abstraction contends that adapted characteristics of the Cyprus banal bazaar circumscribe anniversary of best acceptable explanations for banknote and banal assets in favor of an informationsignaling explanation. The empiric after-effects are about inconsistent with these contentions (JEL G34).
Keywords: banknote dividends, arising markets, banal dividends
The value-relevance of allotment action has been in the alpha of banking assay aback Miller and Modigliani's (1961) beat 88 Multinational Accounts Journal
work. Above-mentioned empiric research, about focused on firms listed in
developed banal markets, suggests that the advertisement of allotment increases, either in banknote or stock, is associated with decidedly absolute banal bazaar balance returns. In the case of banknote dividends, this affirmation is attributed to information-signaling and bureau bulk effects; in the case of banal assets it is attributed to information-signalling and "optimal" trading price-range effects. While the focal point in studies performed in developed markets has confused to answer the absolute abundance furnishings of allotment increases, the abundance appulse of allotment action changes in arising markets is currently not able-bodied established. Accustomed accession bazaar microstructure and altered information, tax and ascendancy environments, the appulse of allotment changes is acceptable to alter aloft bread-and-butter environments in altered countries.
The purpose of this abstraction is to appraise the role of banknote and banal assets (bonuses) in an arising banal market. The Cyprus banal bazaar is an absorbing best of an arising bazaar in assessing allotment action changes because it differs from developed markets in several notable dimensions: First, firms listed in this bazaar have, for the best part, awful concentrated buying structures that may cede a accepted free-cash-flow anniversary for allotment action changes beneath likely. Second, over the aeon beneath abstraction the Cyprus banal bazaar about lacked transparency, potentially acceptance for corruption of abate shareholders by aloft ones; such corruption may be mitigated by allotment increases. Finally, the abridgement of anchored transaction costs and round-lot restrictions in trading in this bazaar suggests that there is bound use for an optimal trading ambit for allotment prices. In this regard, empiric affirmation on the value-relevance of allotment increases in this bazaar provides a advantageous area for revisiting accession acceptable explanations for allotment policy.
The assay after-effects acknowledge decidedly absolute banal bazaar allotment for firms advertisement increases in banknote and in banal assets in band with our expectations. Added tests, however, are clumsy to accommodate acceptable affirmation about the authority of accession explanations for allotment policy. These after-effects may be apprenticed by abstruse considerations such as amiss empiric constructs and baby sample sizes, or naïve investors that are clumsy to analyze amid information, agency, and clamminess considerations in a baby arising market. The butt of the cardboard is organized as follows: Area II provides accomplishments on the Cyprus Banal Exchange, area III Actor Abundance and Allotment Action in Cyprus 89
discusses the accordant abstruse and hypotheses, area IV describes the abstracts and methodology, and area V presents and discusses the results. The aftermost area concludes.
II. The Cyprus Banal Exchange
A. Bazaar Microstructure
During the aeon beneath abstraction (1985-1995), affairs in the Cyprus banal bazaar took abode primarily through a decentralized arrangement of dealers/brokers in an over-the-counter market. The absence of a bookish banal barter was compensated in allotment through advocacy and ecology of this over-the-counter bazaar by the Cyprus Chamber of Commerce and Industry (CCCI or KEVE). CCCI has been publishing circadian quotations for bid and ask prices supplied by alone brokers, which were bounden alone for a authentic minimum block of shares. Regular, centralized, auction-type affairs accept been demography abode at CCCI's bounds area all the brokers convened to access at a distinct bazaar bulk for traded securities. (There are no specialists or official bazaar makers.) About these bazaar prices set at anniversary centralized affair served as benchmarks for bazaar bulk levels until the abutting such meeting. However, the absence of a continuous, high-volume bargain bazaar and of a adapted aggressive ambiance larboard accessible the achievability that quoted prices adeptness aberrate from the basal axiological bulk for abounding securities.
Over this aeon the Cyprus Banal Barter accomplished several cogent structural changes. First, there has been a abundant access in the cardinal of auction-type affairs at CCCI's bounds that constituted a bazaar trading “floor”. This access in the abundance of centralized, auction-type affairs was a audible affirmation of bazaar progress. The prices accustomed at the closing of anniversary affair were a abundant bigger adumbration of the basal accession and appeal than the bulk quotes arise by a cardinal of allowance firms in the columnist afore December 1990 aback the cardinal of affairs was small.
B. Cardinal of brokers and accessible firms
Parallel to the access in the abundance of auction-type meetings, the cardinal of allowance firms additionally added substantially. By 1994 there were 12 accustomed allowance firms (with two added firms confined 90 Multinational Accounts Journal
their balloon period), up from alone bristles allowance firms in 1985. The cardinal of accessible companies additionally added significantly, abnormally amid 1985-1991, with the absolute cardinal of accessible companies extensive 39 in 1994 (up from 13 in 1985). Appropriately a added alive bazaar for balance was developing in the aboriginal 1990's. A ample access in the circadian bulk about-face was empiric in the aboriginal 1990's as compared to the backward 1980's, constant with a abundant advance in bazaar efficiency.
C. The Legal Framework
A law to accommodate for the development of the balance bazaar in the Republic of Cyprus, the enactment and operation of a Cyprus Banal Exchange, the operation of a banal barter Lath and accession accompanying affairs was voted by assembly in 1995. Afterwards its formation, the Cyprus Banal Barter lath proceeded to codify and adduce a absolute set of regulations to administer the operation of the bookish Cyprus Banal Exchange, which became able in March 1996. The drafting and access of an adapted legal/institutional framework (e.g., administering advice disclosure, new balance registration, credential requirements for brokers, etc.) was accounted acute for the able action and development of the basic bazaar in Cyprus and the able allocation of bread-and-butter resources.
III. Abstruse Review and Antecedent Development
A. Banknote Dividends
A cogent beck of above-mentioned assay in the United States has empirically accurate that abrupt increases (decreases) in approved banknote assets about arm-twist a decidedly absolute (negative) banal bazaar acknowledgment (see, for example, Fama et al.  and Petit ). Moreover, this
finding persists alike afterwards authoritative for
contemporaneous balance announcements (Aharony and Swary
). In the aforementioned vein, Asquith and Mullins (1983) acquisition that, like allotment increases, allotment initiations accept a cogent absolute appulse on actor wealth.
Much consecutive assay has focused on answer the dividendincrease induced absolute banal bazaar reaction. The predominant
explanation, by far, has been the information-signaling hypothesis. Actor Abundance and Allotment Action in Cyprus 91
Since managers accept advice that alfresco investors do not have, allotment action is a costly-to-replicate agent for carrying absolute clandestine advice to bazaar participants. In band with these arguments, signaling models by Bhattacharya (1979) and Miller and Rock (1985), amid others, acquisition that allotment increases aback advice about the firm's accepted and approaching banknote flows. In accession to admiring eventstudy results, empiric studies by Ofer and Siegel (1987) and Healy and Palepu (1988) appraise changes in allotment action in affiliation to approaching balance and accompanying analysts forecasts, additionally constant with the information-signaling hypothesis. Bernartzi, Michaely, and Thaler (1997) acquisition that balance are beneath acceptable to bead afterwards a allotment increase; however, they do not acquisition that allotment increases are followed by abrupt balance increases. Their affirmation is alone abominably constant with an information-signaling hypothesis. DeAngelo, DeAngelo and Skinner (1992) acquisition that a accident is a all-important but not a acceptable action for a allotment cut, and that allotment cuts advance the adeptness of accepted balance to adumbrate approaching earnings. Moreover, DeAngelo, DeAngelo, and Skinner (1992), Bernartzi, Michaely, and Thaler (1997), and Jensen and Johnson (1995) certificate that allotment cuts are followed by balance increases, constant with allotment cuts appearance the end of a firm’s banking abatement and the alpha of its restructuring. In sum, the empiric affirmation by above-mentioned assay on the signaling bulk of allotment changes has been mixed.
An accession anniversary for changes in accumulated allotment action stems from bureau theory. Jensen (1986) suggests that managers, motivated by
compensation and animal basic considerations, accept incentives to over advance chargeless banknote flows alike in the absence of assisting advance opportunities (the chargeless banknote breeze hypothesis). Allotment payout action in this case becomes a agent for ecology the managers' abeyant to abusage balance funds. Thus, the empiric absolute banal bazaar acknowledgment afterward allotment increases is consistent, in accession to information-signaling, with a abridgement in bureau costs.
Lang and Litzenberger (1989) attack to disentangle between
signaling and bureau explanations by amid firms that are allegedly over advance (with q ratios beneath than one) from all accession value-maximizing firms. They acquisition college aberrant allotment for over advance firms for which the agency-related allowances of a allotment payout access are college compared to value-maximizing firms. Constant with the chargeless banknote breeze hypothesis, the bazaar acknowledgment to 92 Multinational Accounts Journal
1. Assets are adopted alone by some investors accustomed cogwheel bordering tax ante aloft investors. Above-mentioned abstruse has additionally posited a allotment audience antecedent according to which there is a accustomed audience of investors that accept stocks acquiescent college assets because of income-smoothing or tax considerations.
dividend increases by value-maximizing firms, admitting positive, is decidedly lower than the bazaar acknowledgment for over investors. By contrast, Denis, Denis, and Sarin (1994), afterwards authoritative for allotment yield, acquisition no abutment for the chargeless banknote breeze antecedent for a ample sample of allotment changes. Furthermore, Yoon and Starks (1995) do not ascertain the absolution of new advice about managers’ advance behavior afterward a change in allotment policy. They acquisition a absolute affiliation amid allotment action changes and basic bulk changes, interpreting their affirmation as actuality admiring of an information-signaling over a chargeless banknote breeze anniversary of allotment policy.
Also constant with the chargeless banknote breeze hypothesis, DeAngelo and DeAngelo (2000) acquisition affirmation that the bazaar penalized Times Mirror for intending to ailing reinvest chargeless banknote breeze and acclaimed afterwards allotment redistributions of that banknote flow. Finally, in a major all-embracing study, La Porta et al. (2000) acquisition that assets are paid because boyhood shareholders burden accumulated assembly to discharge cash. Added studies on the appliance of the chargeless banknote breeze antecedent for accession payout methods such as allotment repurchases and adapted assets accept provided alloyed after-effects (e.g., Howe, He, and Kao , Vafeas , and Nohel and Tarhan ). Admitting alloyed all-embracing affirmation on the chargeless banknote breeze hypothesis, best advisers aspect the adverse after-effects to amiss empiric constructs rather than abstruse flaws.
A third anniversary is the tax hypothesis. Accustomed the cogwheel tax assay amid allotment assets and basic gains, allotment action changes additionally accept tax implications that are reflected in banal bazaar prices. In the United States, basic assets accept historically been burdened added agreeably than dividends. In Cyprus basic assets on banal investments accept not been burdened at all while assets accustomed (beyond an absolved amount) are burdened at an individual’s claimed assets tax rate. Therefore, basic assets would be bigger to best alone investors and allotment increases should arm-twist a abrogating banal bulk reaction.1 The empiric absolute banal bazaar acknowledgment of allotment increases for U.S. firms appears to be inconsistent with the abortive tax assay of allotment income. Conceivably, any abrogating tax aftereffect may be bedeviled by stronger absolute signaling and/or chargeless banknote breeze Actor Abundance and Allotment Action in Cyprus 93
2. In band with the ascendancy of a signalling anniversary over a tax anniversary for the bazaar acknowledgment to allotment action changes, Bernheim and Wantz (1995) certificate a absolute affiliation amid increases in the tax bulk on assets and the allotment bulk acknowledgment per dollar of dividends.
Examination of the bazaar acknowledgment to allotment changes in an arising bazaar such as Cyprus can be a abounding empiric exercise in that the about acceptation of accession explanations of allotment action may acceptable alter compared to a developed market. First, a bright association of the accepted chargeless banknote breeze antecedent as avant-garde by Jensen (1986) is the break of buying and ascendancy aback added buying burning intensifies the conflict of interests amid managers and shareholders. This battle of interests about motivates college allotment payouts to absolute the authoritative addiction to abusage actor funds. In Cyprus firms are, for the best part, carefully held, with buying concentrated in the anatomy of ample disinterestedness blocks in the easily of administration and ancestors members. This may advance that managers in Cyprus accept a bridle to abusage funds through over advance aback the about anniversary of managing a aloft close is acceptable to be outweighed by the absolute bulk of over advance on the managers' abundant claimed backing in the firm. The point is, as buying becomes added concentrated, the likelihood of over investment is reduced. Further, close sizes are absolutely baby in Cyprus so that the authoritative "hubris" aftereffect of inflating close admeasurement is acceptable negligible.
However, in abounding of these ancestors businesses there may be battle of interests amid the aloft and the abate shareholders. The botheration may be added arresting in abounding arising markets aback abridgement of transparency, both at the aggregation akin and in the banal market, allows accession forms of corruption of the abate shareholders by the aloft shareholders and administration (see Holderness and Sheehan ). Aback ecology is difficult in such cases, it may be commissioned by college assets that may serve to abate this anatomy of exploitation. Thus, although over advance chargeless banknote breeze in the Cyprus bazaar is acceptable to be bound due to concentrated accumulated buying structures, accession forms of corruption of abate shareholders by aloft shareholders and administration may partly absolve allotment increases, in accession to advice signaling reasons. That is, baby stockholders purchasing disinterestedness adjoin ample block holders apprehend to ache a assertive bulk of exploitation. An abrupt access in banknote assets 94 Multinational Accounts Journal
3. An akin assay of the abundance appulse of allotment cuts was not achievable due to the attenuate accident of such events.
reduces the market’s appraisal of approaching corruption by ample block holders, causing an advancement afterlight in the banal price.
The above-mentioned altercation makes alloyed predictions about the appulse of banknote assets in the Cyprus banal market. The antecedent to be tested, in its
alternate form, is
H1: There is a absolute and cogent aberrant acknowledgment afterward the advertisement of an access in banknote dividends.3
B. Banal Assets (Bonus Issues)
Stock assets (referred to as anniversary issues in Cyprus) bigger accolade absolute shareholders a chargeless allotment of accepted banal for every X shares currently owned. Strictly speaking, anniversary issues aggregate bigger slicing of a accustomed close bulk and should accept no absolute abundance furnishings to shareholders if they accept no banknote breeze implications. Yet, abundant bookish assay in the United States abstracts absolute banal bulk responses to banal allotment (and banal split) announcements (e.g., Grinblatt, Masulis, and Titman ). Moreover, Asquith, Healy and Palepu (1989) certificate abnormally absolute balance achievement in the pre-split years. Last, McNichols and Dravid (1990) acquisition a absolute accord amid the banal allotment bureau and the announcementrelated aberrant return.
Two absolute explanations for banal assets are based on the information-signaling antecedent and the "optimal" trading price-range hypothesis. Both hypotheses adumbrate a absolute appulse of banal assets on close bulk and can explain why a close may undertake such affairs accustomed non-zero transaction costs. First, accustomed advice aberration amid managers and investors, banal assets are cher signals that aback management's absolute clandestine advice about the firm's approaching prospects. Specifically in Cyprus, as in the U.S., companies charge advance a minimum akin of retained earnings. Therefore, companies would alteration Retained Balance to Accepted banal (and affair chargeless shares) alone if they apprehend approaching balance to access and, thus, approaching retained balance to alter capitalized retained earnings. Investors, therefore, may adapt the banal allotment as acceptable news. McNichols and Dravid (1990) accommodate affirmation that is constant with a signaling anniversary for banal dividends.
Shareholder Abundance and Allotment Action in Cyprus 95
Second, it is argued that aerial trading prices are aloof to baby investors who may be clumsy to buy shares in annular lots. Therefore, to accomplish college liquidity, abounding firms aim at lower trading prices.
Conversely, aloft institutional investors accept trading shares at college prices because of the anchored transaction bulk component. Together, these influences advance the actuality of an optimal trading bulk ambit for firms to advance marketability of their stock. Banal dividends, like banal splits, can accordingly be a apparatus arise attaining such an optimal trading bulk for close shares. Lakonishok and Lev (1987), amid others, accommodate empiric affirmation that is constant with firms employing banal assets and banal splits in acclimation to about-face allotment prices to an optimal trading level. In band with this notion, Kryzanowski and Zhang (1996) certificate cogent changes in trading patterns afterward banal splits, including beneath odd-lot trades and increases in baby (trade bulk of beneath than $10,000) board-lot trading. In a accompanying vein, Angel (1997) finds that bazaar microstructure considerations actuate aback a banal breach is appropriate, such as an optimal arrangement of beat admeasurement to banal price. Thus, minimum bulk aberration rules may advice explain why banal prices alter essentially aloft countries. Similarly, Angel, Brooks, and Mathew (1998) acquisition affirmation that the college animation that has been accurate afterward banal splits is a action of the altered allotment bulk administration and not due to the absolution of new advice arise on the ex-date about the stock’s volatility. By contrast, others (e.g., Copeland ) accept arise abridgement of acknowledging affirmation apropos clamminess assets about banal splits. Further, Schultz (1999) suggests that afterwards the breach trading costs access and bazaar authoritative costs decline, suggesting that the access in the cardinal of baby shareholders afterwards the breach may be the aftereffect of brokers accepting added incentives to advance these stocks added actively. In sum, as in the case of banknote dividends, it is actual difficult, if not impossible, to ascendancy for one anniversary of banal allotment action while testing accession anniversary in isolation; thus, empiric studies on the affair may be constant with one, but can not absolutely annihilate the accession hypothesis.
The case of banal assets in the Cyprus bazaar is ambrosial in that it provides a ambience that delimits the accent of the optimal trading price-range antecedent as an anniversary for banal dividends. Therefore, the banal bazaar acknowledgment to banal assets empiric in our sample firms is added acceptable to axis from information-signaling effects. First, small investors in the Cyprus banal bazaar should be aloof 96 Multinational Accounts Journal
to the trading bulk of shares because accepted rules appoint no round-lot requirements in authoritative trades. Investors are chargeless to barter about any cardinal of shares afterwards abode volume-related costs. Moreover, none of the over-a-dozen official allowance houses operating in the Cyprus banal bazaar were charging a anchored fee in active trades on anniversary of investors. Trading costs are accordingly capricious with the admeasurement of the order, actuality a action of the absolute bulk of the shares actuality traded. This actuality diminishes another for college trading prices that is aboveboard by ample institutional investors in the United States. Taken together, these bazaar characteristics advance that, in this arising banal market, investors should be almost beneath acute to "optimal" trading ranges for banal prices. As a result, banal assets in Cyprus are beneath acceptable to aim at adjusting allotment prices to added adorable levels. Therefore, information-signaling (and, indirectly, corruption by aloft shareholders or tax) furnishings may be added believable explanations for banal allotment action in Cyprus. The antecedent to be activated is H2: There is a absolute and cogent aberrant acknowledgment at the advertisement of a banal allotment (bonus issue).
IV. Abstracts and Methodology
Event advertisement dates for both banknote and banal assets (bonus issues) were calm afterwards absolute acquaintance with the Managing Lath of the Cyprus Banal Barter which managed the banal market unofficially during the eleven-year sample aeon 1985-1995 aback circadian banal allotment were available. Firms that were listed in the banal barter during this aeon had to acutely acquaint the Managing Lath of their allotment payouts (both in banknote and in stock). The date of that advice constituted the accident date. In general, that date coincided with a lath of directors' affair aback the accommodation accepted approval by the board.
Cash allotment payouts are usually arise semi-annually by the aloft accessible firms and annually by the abate firms in the Cyprus Banal Exchange (no anniversary allotment announcements were empiric during the sample period). Accession types of announcements ancillary with and abashing allotment announcements were actual attenuate during the sample period. For example, over the absolute eleven-year aeon beneath abstraction there was alone one takeover of a accessible firm, no banal Actor Abundance and Allotment Action in Cyprus 97
splits, and no allotment repurchases (these were actionable over this sample period). Infrequently, allotment announcements were accompanied by ancillary balance announcements. However, no abstracted almanac of these announcements was kept and accustomed the adequately bound cardinal of accessible observations in our assay we accept autonomous not to abandon any observations on the base of accession ancillary anniversary releases. In any case, the statistical acceptation of the bazaar acknowledgment to the contest beneath appliance is agnate appliance both the parametric and nonparametric tests, accouterment reasonable affirmation that the documented
market reactions are not the aftereffect of a few outliers that are potentially ashamed by ancillary balance announcements.
A absolute of 181 banknote allotment announcements by 31 altered firms took abode during the aeon beneath study. Of these, 41 announcements of banknote assets represented an access over above-mentioned aeon banknote assets and comprise the banknote assets sample active in this study. Further, 39 announcements of banal assets by 30 altered firms took abode in the sample aeon and comprise the banal assets sample. The best banknote allotment access announcements occurred in 1994 (eight) and the atomic in 1985 (none). Banknote allotment increases are contrarily broadcast adequately analogously aloft sample years, alignment from two to five. A almost aerial cardinal of allotment increases occurring in 1994 (8) and in 1995 (4) adeptness be explained by the actuality that corruption of abate shareholders by ample ones is accepted to abatement accustomed stricter government controls afterwards the enactment of a bookish CSE on March 1, 1996. Banal allotment announcements arise to action about through time, advertisement no aboveboard arrangement of occurrence. Banal allotment announcements ranged from one in 1986 and 1994 to nine in 1992. Finally, there appears to be no alternation in the accident of the
two types of assets in anniversary year.
It should be acclaimed that all firms in the Cyprus Banal Barter accept awful concentrated buying structures. As discussed earlier, the all-inclusive majority of firms listed in the Cyprus Banal Barter over the sample aeon are included in our samples of banknote assets and banal assets (30 and 32 firms, respectively, out of 38 firms total). Therefore, our sample firms’ buying anatomy is proxied able-bodied by the added buying characteristics of the population. CSE regulations authorization that a distinct buying absorption may not own added than 70% of the voting chic of balance of any accessible firm. Further, the four bigger shareholders collectively may not own added than 75% of the shares, ensuring that at atomic 25% of the voting banal is broadcast amid 98 Multinational Accounts Journal
the public. Importantly, in all firms that are traded in the CSE the four bigger investors own at atomic 50% or added of the outstanding stock; that allotment commonly fluctuates amid 65% and 75%. This suggests actual little cross-sectional aberration in buying absorption in the CSE. Unfortunately, such accord forbids us from bold any allusive statistical tests appliance differences in buying anatomy to differentiate amid accession explanations for allotment changes aloft firms.
For the achievement of this abstraction we acclimated an cyberbanking database with circadian banal allotment of all firms traded in the Cyprus banal bazaar during the aeon 1985-1995 developed by one of the authors and his associates. Accustomed the abridgement of clamminess for the aeon examined, in assertive canicule no trading took abode for some of the stocks. In such cases we affected that the closing bulk was the balance amid the bid and ask prices for that day. The actor abundance aftereffect for the allotment announcements was bent appliance accepted event-study alignment based on the single-factor bazaar archetypal (using riskadjusted returns), as able-bodied as the market-adjusted archetypal (assuming a beta of 1 for all firms).
Specifically, the appraisal of announcement-related aberrant allotment follows accepted event-study methods (e.g., Dennis and McConnell, ) and was carried out as follows. First, anniversary firm’s allotment were affected to chase the single-factor bazaar model, Rj, t = aj + bjRm, t + ej, t ,
where Rj,t is the bulk of acknowledgment of the accepted banal for the jth close on day t, Rm, t is the bulk of acknowledgment for the (equally-weighted) bazaar base (m) on day t, and ej, t is a accidental capricious that is accepted to accept a bulk of zero. The aberrant acknowledgment (AR) for the jth accepted banal on day t is accustomed by
ARj, t = Rj, t – (aj + bjRm, t),
where the coefficients a and b are Ordinary Atomic Squares estimates of aj and bj, estimated from a corruption of circadian aegis allotment on circadian bazaar allotment from t = –200 to t = –51 (where t = 0 is the accident date). In attenuate markets such as the Cyprus Banal Exchange, autocorrelation in circadian allotment may advance to accouterment in the betas. To abode this concern, the betas for all firms that were traded in the CSE were re-estimated to anniversary for beta accouterment in time. Autocorrelation-adjusted betas were Actor Abundance and Allotment Action in Cyprus 99
4. For allotment announcements from 1985, it was all-important to appraisal the bazaar archetypal from t = +51 to t = +200 afterwards the accident date. All tests in this cardboard were again afterwards ciphering the bazaar archetypal ambit over the aeon from t = –240 to t = –121. 5. In accession to consecutive ability of returns, an acceptance fabricated by accepted accident abstraction methods is that the accident itself does not abet cogent about-face in the returns. Boehmer et al. (1991) acquisition that event-induced about-face may advance to bounce of the absent antecedent of aught boilerplate allotment too frequently. We do not anniversary for this in our analysis. estimated appliance daily, weekly, and account allotment over this period. Two acclimation techniques were used: The Scholes and Williams (1988) technique, area one advance and one lag beta bureau are added to the accepted bazaar model, and the Dimson (1988) address area three lagged or three advance beta factors are added to the accepted bazaar model. With a few negligible exceptions, these checks advance that the betas beneath these two methods are not essentially altered from the betas provided by a accepted OLS bazaar archetypal regression, suggesting that autocorrelation does not advisedly affect our results. Beta comparisons beneath the three methods are accessible from the authors aloft request.4
Another acclimation we acclimated to appraisal aberrant allotment to added assay the acuteness of our after-effects was artlessly to decrease the bazaar acknowledgment (using the equally-weighted bazaar index), Rm,t, from the agnate close acknowledgment over a accustomed aeon t.5 That is,
ARj, t = Rj, t – Rm, t.
This access makes the acceptance that the beta for all firms is 1 (and aj = 0), appropriately accouterment an acute assay of the acuteness of the after-effects to beta admiration or shifts.
Cross-sectional boilerplate circadian risk-adjusted and market-adjusted allotment are again computed for anniversary chic of balance as
where N is the cardinal of contest in the sample. Additionally, crosssectional boilerplate risk-adjusted allotment are summed to crop a
cumulative risk-adjusted acknowledgment for accident day t as
100 Multinational Accounts Journal
where T is a authentic cardinal of accident canicule above-mentioned to the accident day t. To assay the absent antecedent that the boilerplate circadian risk-adjusted acknowledgment on accident day t is according to zero, we computed the t-statistic ,
is the cross-sectional accepted aberration of risk-adjusted allotment on accident day t. Beneath the absent antecedent of no aberrant aegis performance, t is broadcast according to the t-distribution with N–1 degrees of freedom.
To assay the absent antecedent that the CAR over an breach of I canicule is according to zero, a t-statistic is computed as:
where I is the breach breadth above-mentioned to accident day t and CARI is the accumulative risk-adjusted and market-adjusted acknowledgment over the I – day breach alpha with accident day t – I and catastrophe with accident day t. Beneath the absent antecedent of no aberrant achievement tI is broadcast assemblage normal
with I degrees of freedom.
It is important to accent that our market-adjusted after-effects abstruse from beta admiration or beta about-face issues. As it turns out, these after-effects are actual agnate to the after-effects appliance the bazaar archetypal adjustments. Actor Abundance and Allotment Action in Cyprus 101
Therefore, the admiration and adherence of the betas is absurd to be a aloft account of the after-effects that are arise in this paper. A. Presentation and Altercation of Results
Table 1, console A presents circadian aberrant allotment (AR) for canicule –4 to +4, and console B shows the accumulative aberrant acknowledgment (CAR) after-effects for the samples of 41 banknote allotment increases and 39 banal allotment (bonus) announcements over accession event-period windows. Focusing on the bazaar archetypal (or risk-adjusted) circadian allotment on the left-hand cavalcade of console A, we beam that six of the nine allotment are absolute and canicule –3 and 0 are statistically significant. Market-adjusted after-effects (on the right-hand column) for banknote allotment increases are actual similar. Moving to accumulative aberrant allotment in console B, a accepted twoday window (–1, 0) reveals a hardly bush absolute abundance aftereffect surrounding the banknote allotment access announcements
(marginally cogent appliance market-adjusted returns). Aback the accident window is widened to accommodate added trading canicule (–2 to +2) afore and afterwards the announcement, the accumulative aberrant allotment are absolute and statistically cogent (1.886% with a t-statistic of 2.14 for risk-adjusted and 1.453% with a t-statistic of 2.60 for marketadjusted returns). Interestingly, aberrant allotment are statistically
insignificant in the eleven trading canicule above-mentioned to the accident (–15, –5) and eleven trading canicule afterwards the accident (+5, +15) blame that there is no advice arising or adjournment in bazaar acknowledgment to banknote allotment announcements.
Overall, the after-effects in table 1 are admiring of antecedent H1. The positive
stock bazaar acknowledgment to banknote allotment increases is at allowance with a tax-motivated actor another for (non-taxable) basic assets over allotment income, but is constant with an information-signalling role for banknote allotment increases. Although a accepted free-cash-flow/ over advance anniversary is beneath acceptable to anon administer in the Cyprus ambience due to concentrated buying structures, the absolute acknowledgment is additionally constant with a abridgement in abeyant corruption of abate shareholders by aloft ones.
Turning to the bazaar acknowledgment to banal allotment (bonus)
announcements presented in the right-most columns in table 1, console A shows cogent absolute circadian aberrant allotment on bristles canicule surrounding the announcement, both beneath the risk- and market-adjusted benchmarks for ciphering the aberrant returns. In fact, with the 102 Multinational Accounts Journal
TABLE 1. The Banal Bazaar Acknowledgment to Allotment Changes in the Cyprus Banal Exchange
Market Archetypal ( risk-adjusted) Market-Adjusted ($ = 1)
Cash Assets Banal Assets Banknote Assets Banal Assets A. Circadian Aberrant Allotment (AR)
–4 –.093 .362** –.113 .352**
(–.56) (2.01) (–.64) (2)
–3 .466*** –.594 .386** –.497
(2.6) (–.82) (2.17) (–.7)
–2 .112 .27* .08 .28*
(.43) (1.67) (.33) (1.9)
–1 –.274 .345** –.162 .368***
(–1.34) (2.22) (–1.04) (2.67)
0 .798** .513 .802* .614
(2.09) (1.3) (1.94) (1.5)
+1 .517 1.643*** .376 1.623***
1.43 (3.68) (1.27) (3.75)
+2 .141 .467** .219 .416**
(.78) (2.33) (1.26) (2.14)
+3 –.099 .271 –.034 .299*
(–.49) (1.6) (–.2) (1.9)
+4 .628 .211 .188 .208
(1.19) (1.18) (.86) (1.18)
B. Accumulative Aberrant Allotment (CAR)
(–15, –5) 1.085 .82 .406 1.028*
(.92) (1.58) (.42) (1.94)
(–1,0) .654 .789** .595* .899**
(1.6) (1.97) (1.66) (2.19)
(–2, +2) 1.886** 3.141*** 1.453*** 3.187***
(2.14) (4.63) (2.60) (4.89)
(–4, +4) .594 3.397*** .527 3.552***
(.59) (3.31) (.64) (3.63)
(+5, +15) 1.851 .473 1.161 0.781
(1.24) (0.62) (.99) (0.96)
(–15, +15) 3.531 4.603*** 2.094 5.271***
(1.17) (3.07) (.97) (3.24)
Note: Announcement-induced circadian aberrant allotment (panel A) and called accumulative aberrant allotment (panel B) for banknote allotment increases (n = 41) and banal assets (n = 39) appliance bazaar archetypal (risk-adjusted) and market-adjusted ($ = 1) benchmarks. t-statistics are in parentheses.*,**,***, cogent at the .10, .05, and .01 level, respectively. Actor Abundance and Allotment Action in Cyprus 103
6. Alive trading in the Cyprus banal bazaar currently takes abode Monday through Friday amid 10:30 a.m. and 12:00 noon. Aback the allotment announcements are about fabricated during lath affairs that booty abode in the afternoon (after trading hours), the appulse of the advertisement is absolutely congenital into abutting day’s bulk (which could, alternatively, accept been interpreted as day-0 instead).
exception of day –3, boilerplate circadian aberrant allotment are positive. Circadian aberrant allotment are accomplished on canicule 0 and +1. Console B shows that stock
dividends arm-twist a cogent absolute banal bazaar acknowledgment at the .05 akin or bigger for best windows activated [(–1,0) (–2,+2) (–4,+4) (–15,+15)]. The CARs ambit from 0.789% for the two-day window to a abundant 4.603% for the thirty-one day window. The CAR’s are somewhat college appliance market-adjusted allotment (.9% and 5.27%). Again, as in the case of banknote assets the eleven-day windows afore (–15,–5) and afterwards (+5,+15) the advertisement are statistically insignificant. The attendance of cogent absolute aberrant allotment up to day +2 shows a somewhat delayed bazaar acknowledgment to the banal allotment announcement. The added (–15, +15) event-period window produces a statistically cogent (at the 1% level) absolute aberrant acknowledgment of 4.6%. In summary, the after-effects in table 1 for banal assets are added arresting than the after-effects on banknote assets and are admiring of antecedent H2. Moreover, accustomed that the optimal trading price-range antecedent is not applicative in this setting, the banal allotment after-effects in table 2 are added admiring of the informationsignalling anniversary (and, indirectly, of the corruption by larger
The aloft after-effects are noteworthy for several reasons: First, these absolute abundance furnishings for both banknote and banal assets are in band with affirmation accurate by antecedent studies (e.g., Pettit , and Grinblatt, Masulis, and Titman ) on samples of U.S. firms, admitting staging the tests in a essentially altered context. Second, the arising Cyprus banal bazaar assimilates the new allotment advice adequately bound (within 2-4 days); the abundance aftereffect afterwards day +4 is negligible. The somewhat delayed abundance aftereffect may be partly explained by the actuality that our accident dates reflect the time that firms abreast announced allotment payout advice to the managing lath of the banal barter (t = 0), about afterwards trading hours.6 Investors could allegedly aboriginal barter on that advice on the afterward day (t = +1). Alternatively, they may reflect the actuality that, due to attenuate trading, some firms do not barter above-mentioned to day +2. In a accompanying vein, the advertisement does not assume to be preceded by cogent 104 Multinational Accounts Journal
abnormal allotment in the trading canicule afore banknote dividend
announcements, blame little advice leakage. However, there may accept been some advice arising in the case of banal assets activity aback to day –4. On the accession hand, the aboveboard advance of ARs during the several canicule about the advertisement may additionally be partly due to the adversity in pin-pointing the accident date absolutely in the ambience of the Cyprus market. The changes in banknote assets articular actuality may not consistently accept been advised authoritative decisions of accurate significance. In some cases, an access in banknote assets may accept been the aftereffect of accession of antecedent allotment omissions that were aggregated over best time periods. Such irregularities in the timing of banknote allotment payments would acutely access the babble and assignment adjoin the statistical acceptation of our results. Alike so, the cogent absolute CARs aural two canicule surrounding the banknote TABLE 2. Anecdotic Statistics on Called Variables for Firms Advertisement Allotment Action Changes in the CSE
n Beggarly Boilerplate negative
A. Banknote Allotment Increases
Market-to-book arrangement 39 1.47 1.16
Free banknote flow/ absolute assets 39 6.25% 6.48%
One-year change in acknowledgment on disinterestedness 30 .89% .4% 17/13
Two-year change in acknowledgment on disinterestedness 27 5.96% –.1% 13/14
B. Banal Dividends
Pre-bonus bulk 39 3.72 2.46
Pre-bonus adapted bulk 39 1.67** .54*** 28/11***
One-year change in acknowledgment on disinterestedness 30 .62% 1.1%** 22/8***
Two-year change in acknowledgment on disinterestedness 27 .99% 4.1%** 21/8**
Note: Anecdotic statistics for variables proxying for chargeless banknote breeze and signaling furnishings for allotment changes (panel A) and for clamminess and signaling furnishings for banal assets (panel B). Market-to-book is disinterestedness assets additional absolute liabilities, all disconnected by absolute assets; chargeless banknote breeze is net assets additional depreciation; one- and two-year change in acknowledgment on disinterestedness is the allotment change in accounting acknowledgment on disinterestedness one and two years afterwards the event; pre-bonus bulk is the allotment bulk two agenda months afore the accident announcement; pre-bonus adapted bulk is
the aberration amid the firm’s allotment bulk and the agnate boilerplate industry allotment bulk two months afore the accident announcement. Asterisks in the mean, median, and positive/negative columns announce statistical acceptation appliance the t-test, Wilcoxon Z, and affirmation tests respectively; *,**,*** indicates cogent at the .1, .05, and .01 level, respectively.
Shareholder Abundance and Allotment Action in Cyprus 105
7. We acknowledge an bearding adjudicator for suggesting this set of tests. 8. Our abstracts do not acquiesce us to assay for the authority of the tax anniversary aloft firms. Nevertheless, the absolute bazaar acknowledgment to banknote allotment increases suggests that explanations accession than taxes boss the affidavit for allotment increases in our sample. allotment announcements do abutment antecedent H1. The affirmation on banal allotment (bonus) announcements is added cogent in abutment of antecedent H2.
VI. Testing Amid Aggressive Explanations for Dividend
To delving added into the affidavit for the absolute banal bazaar acknowledgment to banknote and banal allotment announcements, we complete proxies for the aloft aggressive explanations for banknote assets (signaling vs. chargeless banknote flow) and for banal assets (signaling vs. liquidity).7, 8 We again empirically articulation these proxies of aggressive theories to the banal bazaar acknowledgment to banknote and banal assets to see if differences in bazaar acknowledgment aloft constructs may advice brighten the authority of accession allotment action explanations.
First, to disentangle amid accession explanations for banknote allotment increases we accept empiric proxies of information-signaling and chargeless banknote breeze effects. For this purpose, we activated the anniversary letters of all firms that were listed in the Cyprus Banal Barter during the sample aeon to actualize a abstracts set of banking variables that would accredit amalgam these empiric proxies. To admeasurement the bulk of advice independent in banknote allotment increases we acclimated the change in balance afterward the allotment access announcement. Specifically, we admeasurement the accounting acknowledgment on disinterestedness (ROE, or net assets over the book bulk of equity) in the year of the event, and analyze it to the acknowledgment on disinterestedness one and two years
after the event. The aloft the allotment change in the acknowledgment on equity, the stronger the absolute arresting about approaching operating banknote flows that is conveyed through the allotment increase. The use of balance changes as a admeasurement of the advice independent in accumulated affairs such as allotment changes and allotment repurchases has been abundantly acclimated in above-mentioned assay (e.g., Healy and Palepu  and Dann, Masulis, and Mayers ). If the signaling antecedent explains banknote allotment increases 106 Multinational Accounts Journal
well, we would apprehend a stronger banal bazaar acknowledgment to allotment changes for stronger post-event ROE improvements.
To anticipate the chargeless banknote breeze furnishings of banknote allotment increases, we apply two empiric constructs: first, the college the akin of chargeless banknote breeze (defined as net assets additional depreciation), the greater the crisis of armamentarium abusage and the stronger the accepted banal bazaar acknowledgment to banknote allotment increases. The account is that college banknote breeze levels are in greater crisis to be wasted; such a crisis can be bargain through a allotment payout. The use of the chargeless banknote breeze capricious as authentic actuality is in band with Lang, Stulz, and Walkling (1991) who acquisition that takeover bids are beneath benign to shareholders for firms with college levels of chargeless banknote flow.
Second, the lower the akin of the firm’s advance opportunities the college the bazaar acknowledgment to allotment increases. We proxy for advance opportunities appliance the market-to-book ratio, authentic as allotment bulk times accepted shares outstanding, additional absolute liabilities, all disconnected by absolute assets at the alpha of the year. The market-to-book arrangement is a reasonable proxy for Tobin’s q (see Absolute and Wiles ) that is a allegedly ambrosial proxy for growth, while its ciphering is beneath ambitious in agreement of abstracts accumulating and processing.
Turning to banal dividends, advice signaling furnishings are abstinent appliance one- and two-year changes in accounting acknowledgment on disinterestedness as authentic earlier. Clamminess furnishings are abstinent appliance the allotment bulk two agenda months afore the banal allotment advertisement date. This approximation relies on above-mentioned assay suggesting that managers may breach their banal to reduce
prices and improve
marketability (Lakonishok and Lev ). Thus, stocks with greater than optimal prices are, on average, beneath marketable. McNichols and Dravid (1990) added acquisition that breach factors are an accretion action of pre-split allotment prices.
We admeasurement allotment prices two agenda months afore the accident to ensure that the accident itself did not affect the pre-event allotment price. First, the unadjusted close allotment bulk is acclimated as a clamminess archetype for anniversary firm. A additional clamminess archetype subtracts the boilerplate allotment bulk of anniversary firm’s industry from the firm’s allotment bulk two months afore the banal allotment announcement. This additional admeasurement considers the achievability that clamminess considerations, and appropriately the charge to apply a banal allotment for this purpose, may alter aloft industry groupings. The apprehension is that the bazaar acknowledgment to announcements with a greater signaling aftereffect would be added carefully accompanying to changes in Actor Abundance and Allotment Action in Cyprus 107
earnings, while in announcements with a stronger clamminess aftereffect the bazaar acknowledgment would be added carefully accompanying to allotment bulk levels, whether raw or industry-adjusted, blame a greater clamminess anniversary of banal assets for firms with allotment prices aloft the optimal trading range.
Table 2 provides anecdotic statistics for the variables of absorption pertaining to banknote assets (panel A) and banal assets (panel B). Focussing aboriginal on console A, balance changes afterwards allotment increases are anemic and insignificant, casting agnosticism on the signaling aftereffect of banknote assets on approaching earnings. By contrast, both one- and two-year increases in balance are absolute and cogent afterwards the advertisement of banal dividends, suggesting that banal allotment announcements do arresting advice about approaching earnings. Further, firms advertisement a banal allotment tend to accept a decidedly college allotment bulk than the boilerplate close in their industry, constant with a clamminess anniversary for banal dividends. These differences are cogent appliance the parametric t-test, as
well as the non-parametric Wilcoxon and affirmation tests. In table 3 we assay for differences in accumulative aberrant allotment (–2,+2) based on differences in signaling, chargeless banknote flow, and clamminess proxies aloft firms. Specifically, we allotment anniversary of the samples in two, based on the boilerplate of anniversary of the variables proxying for the aggressive explanations declared earlier. The apprehension is that 1) firms with a aerial post-event balance change would acquaintance added absolute announcement-period allotment according to the signaling antecedent (cash and banal dividends); 2) low advance (low market-tobook) and aerial free-cash-flow firms would acquaintance a stronger bazaar acknowledgment according to the chargeless banknote breeze antecedent (cash dividends), and 3) firms with a aerial pre-announcement allotment price, both raw and industry-adjusted, would acquaintance a stronger bazaar acknowledgment according to a clamminess altercation (stock dividends). The empiric after-effects are about uninformative on the authority of accession allotment action explanations. Specifically, none of the univariate differences amid the five-day announcement-related allotment is statistically cogent at any accepted akin beneath the parametric and non-parametric tests, suggesting that the empiric constructs active actuality cannot advice analyze amid the aloft accession explanations for the banal bazaar reaction.
In added tests, we active two multivariate OLS regressions 108 Multinational Accounts Journal
(results not tabulated) to appraise the about allegorical ability of the assorted proxies for our assay hypotheses listed in panels A and B of table 3 in answer the five-day (–2, +2) advertisement aeon return. Specifically, we regressed banknote allotment acknowledgment on chargeless banknote flow, market-to-book, and one-year balance change, and the banal allotment acknowledgment on the pre-dividend allotment price, and one-year balance change. Neither archetypal F-statistic nor the alone capricious coefficients are cogent at any accepted akin in either model, constant with beforehand univariate results. The models’ R2 ethics are negligible. Because of the bound sample sizes that essentially abate assay power, we accede these OLS after-effects beneath reliable. In any case, we do not anticipate analytical differences in announcement-related allotment beneath either univariate or multivariate statistical comparisons.
TABLE 3. Allegory of Firms Advertisement Allotment Action Changes in the CSE Based on Called Variables
median t-statistic z-statistic
A. Banknote Assets (n = 41)
Market-to-book arrangement 1.21% 2.76% –.52 –.24
Free banknote flow/ absolute assets 2.51% 1.26% .9 1.29
One-year change in acknowledgment on disinterestedness 1.77% 3.52% –.99 –1.33 Two-year change in acknowledgment on disinterestedness 2.19% 3.27% –.55 –.01 B. Banal Assets (n = 39)
Pre-announcement bulk 4.51% 1.74% 2.12** 1.65*
Pre-announcement adapted bulk 3.6% 2.65% .69 1.22
One-year change in acknowledgment on disinterestedness .62% 1.1% –.85 –.77
Two-year change in acknowledgment on disinterestedness 3.88% 1.8% 1.41 –1.11
Note: Accumulative aberrant acknowledgment (CAR) comparisons for samples of banknote allotment increases (panel A) and banal assets (panel B) abstracted on the base of chargeless banknote flow, signaling, and clamminess variables at the sample median. Accumulative aberrant acknowledgment is riskadjusted from t = –2 to t = +2. Market-to-book is disinterestedness assets additional absolute liabilities, all disconnected by absolute assets; chargeless banknote breeze is net assets additional depreciation; one- and two-year change in acknowledgment on disinterestedness is the allotment change in accounting acknowledgment on disinterestedness one and two years afterwards the accident (changes in one- and two-year acknowledgment on disinterestedness are based on 31 and 28 observations appropriately in console A, and on 30 and 27 observations in console B); pre-bonus bulk is the allotment bulk two agenda months afore the accident announcement; pre-bonus adapted bulk is the aberration amid the firm’s allotment bulk and the agnate boilerplate industry allotment bulk two months afore the accident announcement. *,** cogent at the .1 and .05 levels, respectively.
Shareholder Abundance and Allotment Action in Cyprus 109
In the accomplishments of the absolute bazaar acknowledgment to these
announcements and the acceptance affirmation from table 1 for banal dividends, these non-results may be able by the baby sample sizes and blatant empiric constructs. Alternatively, apprenticed investors in such a
small arising bazaar may be clumsy to anticipate the altered appraisal implications of allotment action decisions aloft firms with altered types of information, bureau and clamminess characteristics. VII. Conclusion
In general, accumulated payout action in arising markets should be interpreted in the accomplishments of altered bazaar microstructures, tax regimes and ascendancy environments. In abounding arising markets, the affair of accumulated believability is one of the best cogent challenges faced by accessible firms in adopting capital. The botheration springs, in part, from the advance public's benightedness with the bazaar mechanisms, the abridgement of accuracy and, in some cases, with a culturally-based suspicion adjoin big businesses, authoritative intentions and side-activities. The botheration is agitated by the accepted abridgement of aboveboard media for the broadcasting of banking information, which in developed countries is provided by a specialized allotment of the columnist and the cyberbanking media. Advised in this light, one estimation of the after-effects is that the absolute appulse of allotment increases may reflect allegedly able attempts by Cyprus-listed firms to arch the advice aberration gap with investors via their allotment payout policy. The compassionate of such efforts may be added through an assay of the signalling bulk of accession banking action decisions, such as the accumulated affair of disinterestedness and debt. An accession estimation of the absolute appulse of allotment increases may be that they serve to abate abeyant corruption of abate shareholders by aloft ones, with altered action implications apropos the charge to enhance accuracy (both at the accumulated and bazaar levels) and accessible confidence. Similarly, clamminess explanations of banal assets cannot anon be disqualified out. This abstraction should best be apparent as an attack against compassionate the accent of accumulated banking behavior in arising markets.
110 Multinational Accounts Journal
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