Empirical investigation of the market reaction to corporate announcements

Abstract

The purpose of this research is to test the efficiency of market with respect to corporate announcements using an event study methodology. In particular, this research examines market reactions (in terms of price) to corporate announcements, and in particular to announcements of dividend distribution. To achieve this goal, firstly, theoretical background of transparency requirements in capital markets was studied. Based on literature review related to corporate announcements main hypotheses were formulated. To test these hypotheses, the event study methodology was used, and regression models were built in order to measure the abnormal return (AR) and the cumulative abnormal return (CAR) of share prices and shareholders’ values. The organizations that compose the FTSE /XA Large Cap were used as sample. The object of this paper was to measure the announcement effects on share return of the organizations, by conducting the event study methodology, by measuring the abnormal return (AR) during 10 days before and 10 days after the announcement with the estimation period of 100 days. The examined period was 10 years (January 01, 2011 to December 31, 2020). The data sample covers a sample of 25 organizations, though 17 of them have made corporate dividends announcements over the examined period. The outcomes of the analysis showed a positive effect of the dividend announcement on the stock prices of the largest organizations of Greece.