The Impact of Dividend Policy on Shareholders

*We have benefitted from the helpful comments of participants at the 1999 Financial
Management Association International Conference, held in Barcelona, Spain. The research assistance of Tasoulla Spyrou, Pantelis Nikolaides, and Philio Demetriou is gratefully acknowledged. This project was partly funded by a European Community MED-CAMPUS program research grant.
(Multinational Finance Journal, 2001, vol. 5, no.2, pp. 87–112)
©Multinational Finance Society, a nonprofit corporation. All rights reserved.
1
Shareholder Wealth Effects of Dividend Policy
Changes in an Emerging Stock Market: The
Case of Cyprus*
Nickolaos Travlos
ALBA, Greece, and
Cardiff Business School, U.K.
Lenos Trigeorgis
University of Cyprus, Cyprus, and
University of Chicago, U.S.A.
Nikos Vafeas
University of Cyprus, Cyprus
This article examines the stock market reaction to announcements of cash dividend increases and bonus issues (stock dividends) in the emerging stock market of Cyprus. Both events elicit significantly positive abnormal returns, in line with evidence from developed stock markets. This study contends that special characteristics of the Cyprus stock market delimit applicability of most traditional explanations for cash and stock dividends in favor of an informationsignaling explanation. The empirical results are generally inconsistent with these contentions (JEL G34).
Keywords: cash dividends, emerging markets, stock dividends
I. Introduction
The value-relevance of dividend policy has been in the forefront of financial research since Miller and Modigliani 's (1961) pioneering
88 Multinational Finance Journal work. Prior empirical research, generally focused on firms listed in developed stock markets, suggests that the announcement of dividend increases, either in cash or stock, is associated with significantly positive stock market excess returns. In the case of cash dividends, this evidence is attributed to information-signaling and agency cost

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