Summary of Dividend Policy

This article is about investor’s sentiment and market reaction to dividend news in a European perspective. Three markets were studied in this case, which is UK, France and Portugal. There is a theory that suggest that is based on the market with asymmetric information, insiders whom had the upper-hand uses the dividend policy as a form of signal to convey their firm’s performance to less informed investors from outside the firm. Which means that with dividend increase it signals a good performance, and decrease meaning that the firm is not profiting.

The analysis concluded that market reaction to news about dividend change depends on investors’ sentiments during investment decision process.

The findings show the results as follows. In the UK market, when sentiment is increased, the market reaction is more sensitive to dividend increase and less sensitive to dividend decrease when the sentiment is increased for French market.

As for the French market, the market reactions are more sensitive to dividend decrease announcement for smaller companies.

The smaller firms are more sentimental about market’s reaction to news about dividend change in the UK market.

And firms with big growth or in distress are more sentimental about market’s reaction to news about dividend decreases in the UK and French market.