The effect of dividend announcements on the share price: an assessment of the luxury industry

Abstract: This study presents the effect of dividend announcements on the share price of French companies from the luxury goods industry. The relevant theories used to explain this research were the “dividend irrelevance theorem” proposed by Miller and Modigliani (1961), where dividends do not have an impact in the share price; and the “dividend signaling hypothesis”, where the dividend policy affects the share price. The “dividend signaling hypothesis” was studied by Lintner (1956), Miller and Rock (1985), Grullon et al. (2002), Grullon et al. (2005), Flint et al. (2010), and Vazakidis and Athianos (2010). The application of this theories to the luxury industry was evaluated with statistical elements including the method of “event study”. Data was collected from Bloomberg, financial reports and reports of the general meeting of shareholders. The methodology proposed includes the quantitative analysis of the daily last price of the selected companies, their logarithmic returns as well as their abnormal returns, to demonstrate if they were statistically significant to accept or to reject the findings of Modigliani and Miller. All calculations and estimations were done by using Microsoft Excel®. The main conclusion of this study is that the theory of Miller and Modigliani is not applicable on the listed French luxury goods companies. And in terms of recommendations about the performance of the selected shares: the announcement of dividends has a negative impact between 3 or 4 days before the announcement, and a positive impact no later than 2 days after the announcement