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The Impact of Special Dividend and Redemption Announcements on the Swedish Stock Market


The aim with this study is to investigate the market reactions to announcements of special dividends and redemptions in Sweden and thus if these announcements can signal information. This study is an event study, where the event is the day of the announcement of a suggestion regarding issuance of special dividends or redemptions. The abnormal returns were estimated for two samples with the market adjusted returns model, one including special dividend announcing firms and the other redemption announcing firms. The signalling hypothesis and the hypothesis of a tax induced clientele effect are the most important hypotheses for this study. The efficient market hypothesis is another theoretical base that may explain the market reactions to the studied announcements, especially the pre-announcement activities that may occur. The empirical findings show that there is a statistically significant abnormal return upon special dividends announcements. There is however no statistically significant abnormal return for the redemption announcements. According to the results of the special dividend sample, it is possible that these announcements may be used as conveyors of information from the managers to the Swedish stock market. The evidence is especially strong with a significant abnormal return of 3.94 % at the 0.1 % level during the two days surrounding the actual announcement day. The study also shows that there are some sort of positive preannouncement activity that is statistically significant. There was however no statistically significant abnormal return upon the announcement of redemption programmes and therefore no evidence have been found supporting the signalling hypothesis regarding redemption announcements.

Författare

David Stenstad Ulf Svensson Regina Hermelin

Lärosäte och institution

Lunds universitet/Företagsekonomiska institutionen

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