<p>In this thesis, we have analyzed the ex-dividend stock price behavior in the London Stock Exchange to see if the stock prices really drop by the same amount as the dividend on the ex-dividend day. Our sample data covers 80 FTSE100 companies of the London stock exchange for the period 2001 to 2006.</p><p>To answer the research question: Do returns on the London Stock Exchange act in accordance with the efficient market hypothesis on the ex-dividend day? We used a deductive approach and test four hypothesis. The study was carried out by comparing the actual value of the raw price ratio, market adjusted price ratio, raw price drop and market adjusted price drop to their theoretical values. The difference was tested for significance using the one sample t-test.</p><p>The results showed that there are significant differences in the observed figures from their theoretical or expected values. The observed raw price ratio is higher than the expected value of 1, implying that the stock price on the ex-dividend day drops by an amount that is lower than the dividend paid. Similarly, the market adjusted raw price ratio is also higher than the expected value of 1. The raw price drop and market adjusted price drop are lower than the dividend yield, indicating again that the stock price drops by an amount that is lower than the dividend paid.</p><p>Our results indicated that the null hypotheses stated are rejected since the drop in the stock prices is not equal to the amount of the dividend on the ex-dividend day.</p>

<p>Jag undersöker aktiekurser i samband med utdelning i syfte att få reda på om aktiepriserna har fallit mindre i Sverige jämfört med Finland samt om aktiepriserna i dessa länder påverkats av kortsiktiga investerare. Studien omfattar data från små börsbolag i Stockholms- och Helsingforsbörserna under åren 2002-2004. Jag använder den så kallade ex-dividend-dag-metoden för att mäta det relativa aktieprisfallet samt regressionsmodellen för att studera kortsiktiga investerares påverkan på aktiepriserna under utdelningsperioden.</p><p>Resultaten visar att det relativa aktieprisfallet var högre bland de finska aktierna under studiens tidsram, vilket sannolikt berodde på frånvaron av utdelningsskatten i Finland. De kortsiktiga investerarna verkar inte påverka den svenska aktiemarknaden och endast svagt stöd fås för deras påverkan på de finska aktiepriserna.</p>

In this thesis, we have analyzed the ex-dividend stock price behavior in the London Stock Exchange to see if the stock prices really drop by the same amount as the dividend on the ex-dividend day. Our sample data covers 80 FTSE100 companies of the London stock exchange for the period 2001 to 2006. To answer the research question: Do returns on the London Stock Exchange act in accordance with the efficient market hypothesis on the ex-dividend day? We used a deductive approach and test four hypothesis. The study was carried out by comparing the actual value of the raw price ratio, market adjusted price ratio, raw price drop and market adjusted price drop to their theoretical values. The difference was tested for significance using the one sample t-test. The results showed that there are significant differences in the observed figures from their theoretical or expected values. The observed raw price ratio is higher than the expected value of 1, implying that the stock price on the ex-dividend day drops by an amount that is lower than the dividend paid. Similarly, the market adjusted raw price ratio is also higher than the expected value of 1. The raw price drop and market adjusted price drop are lower than the dividend yield, indicating again that the stock price drops by an amount that is lower than the dividend paid. Our results indicated that the null hypotheses stated are rejected since the drop in the stock prices is not equal to the amount of the dividend on the ex-dividend day.

This thesis examines how industry differences affect both corporate financial policies and valuation. Chapter 1 studies the impact of a firm‟s product market power, through the channel of business risk, on its dividend policy. Using three measures of market power – the Herfindahl-Hirschman index, the degree of import competition and the Lerner Index, I find that market power positively affects a firm‟s dividend decision, both in terms of the probability of paying a dividend and the amount of the dividend. I also provide evidence that the route through which market power affects the dividend decision is business risk: a firm with greater market power is less risky and hence more likely to pay dividends and pay more dividends. Chapter 2 examines industry differences on the level of corporate cash holdings since the 1970s with a focus on high-tech versus non-high-tech firms. In contrast to the average cash-to-assets ratio of non-high-tech firms, which remained stable at a level close to that of the 1970s, the average cash ratio of high-tech firms more than tripled from 1980 to 2007. I find that this difference can be explained by changing firm characteristics across these two industrial sectors. This is due to high-tech new listings, whose changing characteristics and increasing proportion have caused the population characteristics of the high-tech sector to tilt toward those typical of firms that hold more cash. Chapter 3 investigates the industry impact on the marginal value of corporate cash holdings and how it has evolved over time. I find that on average the difference in the marginal value of cash between high-tech and non-high-tech firms has become larger during the sub-period which covers the 1990s and 2000s, as compared to earlier time periods. Furthermore, I show that this increase can be explained by changing firm characteristics related to the precautionary demand for holding cash. Overall, this thesis shows that industry differences, represented by varying degrees of market power and changing firm characteristics, have significantly affected corporate financial policies, both in terms of dividend policy and optimal cash holdings.

Given the importance of historical dividend policy to firms, I investigate whether dividend payers manipulate earnings through real activities to smooth dividend levels and dividend payout ratios. Using Compustat’s Execucomp database, I find evidence that dividend policy impacts both upward and downward real earnings management. I find that payers manipulate earnings upward through real activities to mitigate the shortfall of pre-managed earnings relative to prior year dividends when pre-managed earnings are lower than dividends paid in the prior year, suggesting that dividend levels are an important earnings benchmark. I document a stronger relationship between changes in pre-managed earnings and real earnings management for payers than for non-payers, suggesting that dividend policies impact real earnings management. Consistent with the importance of dividend policy in real earnings management, I show that dividend payers that follow conservative dividend policies manipulate earnings to a greater extent than dividend payers that do not follow conservative dividend policies.

The efficacy of the 2001 and 2003 Bush tax cuts was a major topic of discussion in the 2010 midterm elections. I investigate the effect of the possible expiration and eventual extension of the dividend tax cut on US stock market performance in 2010 based on the methodology used by Amronin, Harrison and Sharpe (2008). I compare aggregate performance of US common stocks relative to foreign stocks using equity indices, and examine cross-sectional performance amongst US stocks by creating different stock portfolios based on their dividend yield. This comparison is done over two event windows, (1) 20-24 September 2010 and (2) 3-8 December 2010. Consistent with previous studies, I find that the US stock market did respond to negative and positive news on the extension of the Bush-era dividend tax cuts, with stock prices falling and rising, respectively. My findings also suggest that this aggregate effect was probably muted by the redistribution of funds by investors from lower-yield to higher-yield stocks. Unlike in 2003, however, in the post-financial crisis context of 2010, the redistribution seemed to particularly favor stocks with medium-dividend yield, rather than smaller, higher-risk stocks with the highest dividend yield.

This thesis examines how industry differences affect both corporate financial policies and valuation. Chapter 1 studies the impact of a firm‟s product market power, through the channel of business risk, on its dividend policy. Using three measures of market power – the Herfindahl-Hirschman index, the degree of import competition and the Lerner Index, I find that market power positively affects a firm‟s dividend decision, both in terms of the probability of paying a dividend and the amount of the dividend. I also provide evidence that the route through which market power affects the dividend decision is business risk: a firm with greater market power is less risky and hence more likely to pay dividends and pay more dividends. Chapter 2 examines industry differences on the level of corporate cash holdings since the 1970s with a focus on high-tech versus non-high-tech firms. In contrast to the average cash-to-assets ratio of non-high-tech firms, which remained stable at a level close to that of the 1970s, the average cash ratio of high-tech firms more than tripled from 1980 to 2007. I find that this difference can be explained by changing firm characteristics across these two industrial sectors. This is due to high-tech new listings, whose changing characteristics and increasing proportion have caused the population characteristics of the high-tech sector to tilt toward those typical of firms that hold more cash. Chapter 3 investigates the industry impact on the marginal value of corporate cash holdings and how it has evolved over time. I find that on average the difference in the marginal value of cash between high-tech and non-high-tech firms has become larger during the sub-period which covers the 1990s and 2000s, as compared to earlier time periods. Furthermore, I show that this increase can be explained by changing firm characteristics related to the precautionary demand for holding cash. Overall, this thesis shows that industry differences, represented by varying degrees of market power and changing firm characteristics, have significantly affected corporate financial policies, both in terms of dividend policy and optimal cash holdings.

The stock market returns are the readily available tool for the investor to make investment decision and stock market return are affected by many accounting variables. Dividend policy measures and stock return relationship has been examined from decades but result is still a dilemma. This study is a step forward to solve this dilemma by considering Karachi stock exchange, Pakistan and Nordic stock markets and conducting a comparative study to also provide a knowledge base to readers. Dividend yield ratio, dividend payout ratio and other accounting variables are examined to find their effect on stock return. Pooled least square regression has been used on the data ranging from 2005-2008 and findings are different in different markets. Dividend policy measures (dividend yield ratio and dividend payout ratio) have significant effect on the stock return and in most countries there is significant negative relationship.

Purpose: The purpose of this thesis is to investigate the applicability of the Free Cash Flow to Equity Model and the Dividend Discount Model on ten large cap firms on the Stockholm Stock Exchange. Moreover the author intends to examine whether these valuation methods differs in regards of the companies’ operational segment, business cycle and turnover. The target prices will hereafter be benchmarked with actual closing prices and professional analysts to observe similarities and deviations. Method: The focus lies on Swedish companies listed on Nasdaq OMX Stockholm’s Large Cap list. The companies are valued by collecting financial information from 2006- 2010 in order to find out what the share price in the beginning of 2011 should be. The models that are used to value the share are the Dividend Discount Model, which basically discounts actual dividends in order to find the present value of the share, and the Free Cash Flow to Equity model, which is discounting the firms’ cash flow available to its stockholders, i.e. the potential dividends. Since both of the valuation models require assumptions on future growth to be made, a combination of calculations and goals presented by the companies has been made in order to assume growth rates. Findings: The findings reveal that out of the twenty valuations that were made half of the most accurate ones came from the Dividend Discount Model, and half came from the Free Cash Flow to Equity model. It was however the Dividend Discount Model that provided the most accurate share prices, in comparison to the actual share prices from January 2011. It is also concluded that the turnover of the firm being evaluated does not have an impact on the valuation process, whilst the industry in which the firm operates as well as its payout ratio are factors that need to be taken into consideration when choosing between the Dividend Discount Model and the Free Cash Flow to Equity model.

The objective of this study is to examine the dividend policy measures effect on the stock prices. A sample of 171 listed companies from Karachi Stock Exchange, Pakistan is examined for a period from 1998 to 2006. The dependent variable stock price volatility is regressed against the dividend policy measures (independent variables) e.g., dividend yield, dividend payout ratio, actual cash dividends and dividend to total assets of the firm, after controlling for firms’ profitability, liquidity, gearing, size and growth. This study finds that, dividend policy measures have strong effect on the stock market prices but results are contradictory to earlier research in Pakistan. Dividend payout and actual cash dividends have negative, significant relationship with stock prices and dividend yield have significant positive relationship with stock market prices.