GSOM Emerging Markets Conference: The analysis of market reaction to dividend announcements of Russian companies Galina Berdnikova, berdnikova.galina@gmail.com, Elena Rogova, erogova@hse.ru, National Research University Higher School of Economics at St.-Petersburg GSOM Emerging Markets Conference: Business and Government Perspectives .

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Outline Motivation Theoretic foundations Dividend Policies of Russian Companies 2. Research Methodology and Results Methodology and Hypotheses Main Results and Conclusions 3. Summary Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Foundations Dividend Policies of Russian Companies Outline Motivation Theoretic foundations Dividend Policies of Russian Companies 2. Research Methodology and Results Methodology and Hypotheses Main Results and Conclusions ✷ Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Foundations Dividend Policies of Russian Companies Theoretic foundations The basic postulate of modern investments and financial management is the company’s value maximization for investors and other stakeholders: The return on the invested capital should be above the level, satisfying the company’s stakeholders and depending on the size of the project, the level of risk, and the market rate of return The investments should be directed to reach economic or other benefits that meet the interests of the major stakeholders of the company Dividend policy is one of the factors that affect the market value of the company and, consequently, the welfare of its shareholders Dividends give a signal to investors. So announcements about dividend payments should not be ignored by investors, and this reaction is considered in corporate managerial decisions Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Foundations Dividend Policies of Russian Companies References Developed markets: Pettit, 1972; Aharony & Swary, 1980; Grullon, Michaely and Swaminathan, 2002; Amihud and Murgia (1997); Karim (2010) Emerging markets: Aivazian and Booth (2003); Altiok-Yilmaz and Akben-Selcuk (2010); Berezinets, Bulatova and Ilyina (2013) Russia: Teplova (2008, 2011) – for the whole market with the special attention to oil and gas sector Teplova: negative results Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Foundations Dividend Policies of Russian Companies Key questions Do dividend announcements give clear signal for investors of Russian companies? If yes, what type of signal we face? Is this reaction similar to all the sectors of Russian economy? Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Foundations Dividend Policies of Russian Companies Outline 1. Motivation Theoretic foundations Dividend Policies of Russian Companies 2. Research Methodology and Results Methodology and Hypotheses Main Results and Conclusions 3. Summary ✶ ✷ Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Foundations Dividend Policies of Russian Companies Specific features of dividend policies of Russian companies 1. The uneven development of industries. Oil and gas industry, metal processing and telecommunications have been the main players at the market and the key drivers of economic growth for a long period of time. More than 80% of all dividend payments are related to oil and gas industry 2. The specific structure of shareholders of Russian companies. About 68% of the shares of Russian listed companies belongs to direct investors, and the free float, respectively, is only about 32%. The government has the full ownership in than 150 companies, a majority stake in 500 companies and a blocking control in more than 1000 companies. It also has minority stakes in about 1,750 companies. 3. The insufficient development of the legislation. The main problem shareholders deal with is the timing and mechanism of dividend payments. Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Outline 1. Motivation Theoretic foundations Market Dynamics of IT Investments 2. Research Methodology and Results Methodology and Hypotheses Main Results and Conclusions 3. Summary ✶ Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Event study analysis The main objective of the event study analysis is to assess the market response to the new event, taking place at a certain time, through a change in the share price. The event is unexpected for the market. An event refers to a message that may have some impact on investors. As such messages we considered the announcements about the IT-investments, as the primary source of information. At the efficient market unexpected changes in stock prices caused by the market's reaction to an event, lead to the emergence of excess returns. Berdnikova & Rogova GSOM Emerging Markets Conference

Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions The algorithm Selection of the events, event windows and estimation period (event window = 11 days, estimation period = 120 days) Sample formation Excess (abnormal) returns identifying NR AR CAR CAAR Testing of the “null” hypothesis Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Sample formation The announcements on dividend payments (board recommendations) Emerging Markets Information Service (EMIS) The period from 1 January 2009 to 1 January 2014 All the announcements collected were analyzed for the absence of other significant events that could have an impact on share prices within the event window. Only the companies that provide information on daily share prices. The final sample consisted of 115 announcements from 58 companies in various industries. Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Sample formation Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Sample formation: the type of the news Good" news: announcements on dividend increase more than 5% or on the resumption of dividend payments. “Bad" news: announcements of the reduction of dividend payments by more than 5% and the refusal to pay dividends after the company had paid them for a certain period. "Neutral" news: announcements that dividend payments had not changed or had changed slightly (decreased or increased by less than 5%). Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Hypotheses H1: Announcements about the increase of dividend payments would cause the growth of share prices of Russian companies H2: Announcements about the decrease of dividend payments would cause the diminishing of share prices H3: Announcements on constant dividend payments do not affect the share prices H4: The reaction to the "good" news will vary depending on the industry in which the company operates Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Research Methodology Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Outline 1. Motivation Theoretic Foundations Market Dynamics of IT Investments 2. Research Methodology and Results Methodology and Hypotheses Main Results and Conclusions 3. Summary ✶ Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Research Methodology Thus, the announcement on changes in dividend payments affects significantly the company's share price. "Neutral" news do not affect the company's share price – the confirmation of the 3rd hypothesis Berdnikova & Rogova GSOM Emerging Markets Conference

The 1st hypothesis is rejected GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions The reaction to “good” announcements The 1st hypothesis is rejected Berdnikova & Rogova GSOM Emerging Markets Conference

The 2nd hypothesis is rejected GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions The reaction to “bad” announcements The 2nd hypothesis is rejected Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions The reaction to the “good” news for different sectors Test statistics results for different sectors Sector of economy CAAR GRANK Student test, 10-% level of significance Student test, 5-% level of significance Chemicals -3,04469* 1,943 2,446 Extraction of energy-producing minerals -6,23283* 1,895 2,365 Extraction of other minerals -3,32323* 2,015 2,570 Metals production and processing -3,32356* * - significant at the 5-% level of significance; ** - significant at the 10-% level of significance Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions The behavior of CAAR for different sectors of economy Chemicals Extraction of energy-producing minerals Extraction of other minerals Metals production and processing The 4th hypothesis is confirmed Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference H Motivation Research Methodology and Results Summary Research Methodology and Hypotheses Main Results and Conclusions Overview of the Results Hypothesis Result Comment H1: Announcements on the increase of dividend payments would cause the growth of share prices of Russian companies Rejected The market reaction is negative H2: Announcements on the decrease of dividend payments would cause the diminishing of share prices The market reaction is positive H3: Announcements on constant dividend payments do not affect the share prices Confirmed No significant reaction H4: The reaction to the "good" news will vary depending on the industry in which the company operates Strong negative reaction for chemicals; almost no reaction for metallurgy Results By Type of Vendor. Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary Summary Results correspond to the results of other researchers Dividend payments give the mixed signal to investors The decisions on dividend policies should take into account the factors affecting the dividend payments, such as the company's investment opportunities, financial constraints, profitability, financial leverage, market-to-book ratio and other indicators Berdnikova & Rogova GSOM Emerging Markets Conference

GSOM Emerging Markets Conference Motivation Research Methodology and Results Summary THANK YOU FOR YOUR ATTENTION! Berdnikova & Rogova GSOM Emerging Markets Conference