Stock Market Reactions to Dividend Announcements in Firms with High Ownership Concentration

This study investigates the stock market reaction to cash dividend announcements where companies exhibit high ownership concentration. The paper uses data from the Jamaica and Trinidad & Tobago Stock exchanges because the levels of ownership concentration on these two exchanges are among the highest in the world, and as such present unique environments to further advance the large literature on the information content of dividend announcements. The extremely high levels of ownership concentration would suggest low levels of information asymmetry and agency costs, and therefore little information content to dividend announcements and little need for dividend payments as either monitoring or bonding mechanisms. As such one would expect little market reaction to dividend announcements on these two exchanges. We document a statistically significant positive market reaction to dividend announcements in Jamaica. This finding may suggest that at least in this market owners place some value on dividends beyond their informational content, and a need for a richer explanation of the role of dividends beyond that suggested by the Information Content and Agency Costs perspectives on corporate dividend policy. We find no statistically significant market reaction to dividend announcements in Trinidad and Tobago which suggests that, consistent with the Information Content and Agency Costs perspectives, dividend announcements provide little new information to these investors; hence prices do not react to dividend announcements. We are inclined to interpret those results with caution due to the presence of thin trading on the Trinidad and Tobago Stock Exchange.