Abstract

The information content of dividend hypothesis has been a controversial debate for a number of decades. This research therefore examines the validity of information content of dividend hypothesis and the reaction of share prices to dividend change announcements that contradict the market phase. That is, observing the reaction of the market to the announcements of dividend decrease (increase) when the market is in a bull (bear) market phase. This is because a bull market is generally characterized by persistent increase in share prices, higher financial wellbeing and strong investor interest. While the bear market on the other hand, is seen as the opposite of the bull market cycle. Using the OLS method of regression and the market model, it was observed that investors have a higher expectation with respect to their investments (in terms of dividends) when the market is in a bull phase and vice-versa in the case of the bear market. The results of this research give a strong backing for the information content of dividend hypothesis as it was discovered that dividend change announcements are positively related to share prices. That is, investors earn abnormal returns around dividend change announcement day especially those that contradict the market phase. The findings of this study also show that investors have similar investment behaviour across different financial markets even in a contradicting bull and bear market phase.

Key words: Dividend announcement, share prices, bull and bear market.