Dividend announcement affects on analysts’ consensus dividend forecasts and share price

Abstract

This research aims to evaluate the impact of dividend related SENS announcements on the share price both before and after the announcement. The objective is to assess if there is a long-term impact on the share price after a SENS announcement, and to assess the accuracy of analyst consensus forecasts, to establish if there is information contained in the build-up to the announcement.A non-representative judgment sample of 988 dividend payout ratio changes was chosen and used as a proxy for SENS dividend announcements. The resulting sample after the removal of outliers, by plotting the cumulative abnormal returns “spaghetti graph” was divided into a sample of 482 SENS announcements (208 companies) where the payout ratio changes more than 10%, and 411 SENS announcements (181 companies) where the payout ratio changes less than negative 10%. An event study assessing the average abnormal returns (AARs) and cumulative average abnormal returns (CAARs) 20 days and 200 days after the announcement was conducted, to determine the impact on the share price. The mean average percent error (MAPE) statistics at 12 months, six months and one month before the announcement date were also tested for significance to assess if the analysts’ consensus forecasts had improved due to information contained in the dividend announcement.The research found that the Johannesburg Stock Exchange exhibits weak efficiency and that there is a long-term impact on the share price after dividend SENS announcement. The significant MAPE indicated that there is information contained in the SENS announcement, showing that the JSE tends to be inefficient.