Do Investors React to Stock Dividends?- relevant content only

timer Asked: Nov 17th, 2016

Question description

Financial accounting theory predicts that there should be no market reaction to a company’s stock dividend. This is because the market value of the shares should decrease after the stock distribution so that the shareholder still owns the same percentage of the company as before the stock dividend. However, sometimes theory does not hold in the real world! In this project, you will pick a company that has issued a stock dividend and analyze the stock market reaction. This is an individual project (no groups).
1. Pick any public U.S. company that has issued a stock dividend in the last 15 years.
2. Go to the SEC’s website ( and find the 10-K filings issued before and after the stock dividend. Provide a “before and after” picture of the equity section of the balance sheet. Do you see any differences as a result of the stock dividend? Why? Also include any footnotes that mention the stock dividend.
3. Do a Google search on any media articles about the stock dividend. Also, check the investor relations section of the company’s website for any press releases. If you locate any articles, provide a summary of what you find.
4. Examine the daily stock return to the stock dividend. Provide the cumulative stock returns for the windows below (where day 0 is the day of the dividend). Show how you calculated your stock returns.
a. (0, 0) – the return on the day of the dividend
b. (-1, +1) – the 3-day return surrounding the dividend
c. (0, +2) – the return on the day of the dividend plus the following two days
d. (-2, +2) – the 5-day return surrounding the dividend
e. (-1, +8) – the 10-day return surrounding the dividend
5. Do you find any evidence of an abnormal stock return? Would you have made money if you bought or sold the stock short during any of these windows?
6. If there is a market reaction, do you think it was due to investors reacting to the stock dividend or to a different event? For example, if the company filed an 8-K during one of these windows, the market reaction you find might be attributable to what the company reported in that 8-K. Check the SEC website to see if there were any other filings during those windows.

Tutor Answer

(Top Tutor) Studypool Tutor
School: Purdue University
Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags
Study Guides

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors