1. GSOM Emerging Markets Conference:
The analysis of market reaction to dividend announcements of Russian companies
Galina Berdnikova,
Elena Rogova,
National Research University Higher School of Economics
at St.-Petersburg
GSOM Emerging Markets Conference:
Business and Government Perspectives .

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. GSOM Emerging Markets ConferenceH
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

24. 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

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