Impact of Dividend Announcement on Stock Price

companies are established to achieve maximum or maximum profit or profit. According to the opinion (Brigham & Houston, 2001), maximizing the wealth of shareholders means maximizing the share price. Judging from the high value of the company is a picture of the welfare of the company owner. The stock price is a measuring value to assess the value of the company. According to (Haruman, 2008) the high value of the company has a positive impact on increasing the welfare of shareholders, so that shareholders are encouraged to invest in the company.

In the financial system, there is one policy where the policy concerns the problem of handling or distributing part of the company's profit which is the right of investors as a form of reward for share ownership. This policy is called dividend policy which is a decision taken by the manager regarding how and how often the company distributes dividends to shareholders. This dividend policy is an issue that is very often discussed and debated by financial actors.

Several researchers have developed and tested several models to explain dividend behavior. Dividends are the distribution of profits to shareholders evenly based on the class of securities and are paid in the form of money, shares, or company property although this is rarely done (John Downes and Elliot Boodnion, 1995). 

It is also conveyed by Widanaputra (2010) that high dividend distribution is given to shareholders and it is expected that an increase will also occur in the value of the company. Dividend distribution that is too high is not recommended because the higher the dividend distributed, the lower the funds available in management. Therefore, dividend distribution must go through careful planning and not be hasty, because this affects the finances of a company.

The existence of dividend policy raises many responses from several related parties. The dividend announcement has various impacts, one of which is the impact on stock prices. This can be seen from the market reaction, both positive and negative reactions. Investors will be interested in investing in companies that publish higher dividends than the previous year. 

And vice versa, investors will not be interested in investing in companies that experience a decrease in dividends because investors see that a decrease in dividends causes a decrease in income. In terms of the impact on stock prices, the dividend announcement means that the announcement contains important information. It is said to have important information if it provides a return to the market, it is said to have no information when the announcement does not provide a significant abnormal return.

The impact arising from the dividend announcement, namely the first impact on management. Managers are insiders who have information lines that know about the company's cash flow who will do something clear for the future of the company when they have the right impetus to do so. 

The signaling impulse approach suggests that management can choose financing expenditures such as dividends as a means of sending signals to the public regarding the company's future work. Dividends provide information about the value of the company that cannot be fully expressed by other media. Second, the impact on share value. According to the opinion of Hatta expressed by Keown in Juma'ah and Olivares (2008: 23) there are three fundamental differences of opinion about the effect of dividend policy on stock value. These opinions are:

• Dividend policy is irrelevant

There are two thoughts underlying this opinion. First, investment decisions and the use of debt have already been made and both have no effect on the amount of dividends to be paid. Second, there is a perfect market:

a.Investors are allowed to sell and buy shares without any loss in transaction costs.

b.Individual companies may issue shares without any costs.

c.No personal income tax or corporate tax.

d.Availability of complete information.

e.There is no conflict between management and investors.

From these assumptions, dividend policy has no correlation with stock price. Investors only see returns, they don't care if those returns come from dividends or capital gains.

• Higher dividends will increase stock prices

The second opinion is that increasing dividend payments can increase the value of the company. Investors prefer dividends to selling their shares.

• Lower dividends will increase the stock price

The third opinion says that dividends actually cause losses for shareholders. This is based on the difference between income tax and capital gains.

In this case, Investors will believe that if the company has a stable dividend payout ratio goal and the ratio increases, investors will believe that management will announce positive changes in the company's expected profits. Increased dividends can have a positive impact on stock prices. According to Arthur j Keown quoted based on Bhattacharya's journal (1979: 259-503), if investors believe that companies that pay larger per-share dividends have high value, then unexpected dividend increases will be considered a happy signal.

This article was written to fulfill Dr. Darmawan's financial management course assignment.