|dc.description.abstract||Purpose – This study is trying to examine whether there is significant stock
prices and volume of shares traded on the cum-dividend date, the last day where
shareholders will still be entitled to receive dividends.
Design/methodology/approach – This study employs an event study
methodology to test the hypotheses. The population of this study are all companies
paying dividends continuously from 2014 to 2016 at Indonesia stock exchange. The
sample consists of 118 companies. Abnormal returns are measured by deducting real
return over expected return. The expected return is derived using the single index
Findings – Employing the event study methodology, the study finds that there is
positive significant abnormal returns on the cum-dividend date. There is also significant
difference of abnormal returns and trading volume activity between cum-dividend date
and after cum-dividend date.
Research limitations/implications – This study does not examine the behavior of
stock prices with-in industry in the manufacturing sector. As there are three different
industries in the manufacturing sector, one industry may have unique characteristic or
extreme behavior compared to the others. In addition, this study uses the Single Index
Model in estimating expected return. The model is selected mainly due to simplicity
Practical implications – The findings reported in this study could benefit
investors in understanding the behavior of stock prices around cum-dividend date and
this could be used as an investment strategy. Investors may obtain significant positive
abnormal returns by using the cum-dividend date event.
Originality/value – There are many theories on dividend proposed by scholars.
One of the theory suggests that dividend can be used as a signal about the quality of the
firm. If the extent of dividend matters, the investor could use the dividend as their
signal for investment in the capital market. This study could be the first in Indonesia
setting that examines the price movement around cum-dividend date||en_US