“The issue of dividends’ impact on stock market prices assumes a central role in corporate finance; two different approaches of analysis were defined in the literature, one linked to the study of the trend in stock prices on the announcement date of the dividend, the other
connected to the study of this trend on the ex-dividend date. In perfect market conditions, the price percentage decrease on the exdividend date should be equal to the dividend yield; however, previous studies have shown that, on average, on the ex-dividend date
prices actually decrease by less than the amount of the dividend yield. As far as the authors know, these studies did not investigate the Italian stock market, nor were any checks carried out on the existence of such behavior with respect to the sector to which they belong and/or other peculiarities of the companies examined. This study is aimed at assessing whether the allocation of cash dividends produced relevant effects on the stock prices of Italian listed firms during the decade from 2013 to 2022. To this aim, we empirically tested the following two research hypotheses: first, the allocation of dividends produces a non-negligible negative effect on stock market prices; secondly, the percentage decrease of stock market prices following the dividends’ allocation is lower, on average, than the dividend yield, i.e. after the ex-dividend date stock prices partially recover the decrease produced by the allocation of dividends. The empirical results support both our research hypotheses, evidencing that the abnormal returns of stock prices observed in the period straddling the ex-dividend date are, on average, negative, but lower than the dividend yield. The analyses of sub-samples show that the results are independent from the market size and the financial or non-financial nature of firms and from whether the company belongs to the reference Italian FTSE MIB equity index or not. However, the impact of dividends is not significant for the observations characterized by a relatively low dividend yield. Our work contributes to the existing literature by providing evidence and considerations on the impacts of dividends on the stock prices of Italian listed firms observed in the last decade. Further investigation on markets’ efficiency and investors’ rationality should help in understanding the reasons behind the positive differential
observed between dividend yields and stock prices’ percentage decreases after the ex-dividend date”.
Keywords: dividends, ex-dividend date, event study, abnormal returns, announcement date.
