Stock distributions can affect the number of outstanding shares and the equity structure of a firm. From a neoclassical perspective, neither should have any effect on market value. However, a respectable number of empirical studies disclose overwhelming evidence that stock markets have a significantly positive reaction to the announcement of stock distributions.
Despite the broad consensus about the positive market reaction, the possible causes are still debated. Focusing on stock dividends, which are a special type of stock distribution, this study revisits this puzzle and provides deeper insight into the economic ramifications of changes in the equity structure.
Overview
I Introduction
II Regulatory Framework
Basic Conditions – Further Legal Implications – Conclusions
III Theory and Empirical Evidence
Theoretical Considerations on Stock Distributions – Empirical Evidence
IV Data and Methodology
Descriptive Data – Event Study Design – Proxy for Jensen's Free Cash Flow
V Data Analysis
Announcement Effect of Stock Dividends – Test of the Free Cash Flow Hypothesis
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