Capital market effects around dividend announcements: an analysis of the Berlin stock exchange in 1895

ABSTRACT This study analyses share-price and trading effects around dividend announcements of firms listed on the Berlin Stock Exchange in 1895. Based on a sample of 166 firms, I find statistically and economically significant positive (negative) cumulative average abnormal returns following a positive (negative) dividend surprise. The positive price impact evolves in advance, while the price impact of negative surprises arises at the announcement date. Consistent with the dividend-signalling hypothesis, these effects are more pronounced for smaller firms and firms with lower financial reporting transparency. Furthermore, trading increases around announcements. The effect is negatively associated with a firm’s market value. These findings are consistent with a differential belief revision among individual investors.