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Investor sentiment and the market reaction to dividend news: European evidence

Elisabete Simões Vieira (GOVCOPP Unit Research, ISCA Department, University of Aveiro, Aveiro, Portugal)

Managerial Finance

ISSN: 0307-4358

Article publication date: 18 October 2011

Abstract

Purpose

The purpose of this paper is to examine the effect of investor sentiment (ISENT) on the market reaction to dividend change announcements.

Design/methodology/approach

The author used the European Economic Sentiment Indicator data, from Directorate General for Economic and Financial Affairs, as a proxy for ISENT and focus on the market reaction to dividend change announcements, using panel data methodology.

Findings

Using data from three European markets, the results indicate that ISENT has some influence on the market reaction to dividend change announcements, for two of the three analysed markets. Globally, no evidence was found of ISENT influencing the market reaction to dividend change announcements for the Portuguese market. However, evidence was found that the positive share price reaction to dividend increases enlarges with sentiment, in the case of the UK markets, whereas the negative share price reaction to dividend decreases reduces with sentiment, in the French market.

Research limitations/implications

The author had no access to dividend forecasts, so, the findings are based on naïve dividend changes and not unexpected change dividends.

Originality/value

This paper offers some insights on the effect of ISENT on the market reaction to firms' news, a strand of finance that is scarcely developed and contributes to the analysis of European markets that are in need of research. To the best of the author's knowledge, this is the first study to analyse the effect of ISENT on the market reaction to dividend news, in the context of European markets.

Keywords

Citation

Simões Vieira, E. (2011), "Investor sentiment and the market reaction to dividend news: European evidence", Managerial Finance, Vol. 37 No. 12, pp. 1213-1245. https://doi.org/10.1108/03074351111175100

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited