Paper Title
Market Response to Cash Dividend Announcement in Korean Stock Market - Focused on High-dividend preference Theory

The purpose of this study is to investigate the market response of stock price to cash dividend announcement from 2011 to 2016 in Korean stock market. The empirical results of this study are as follows. First, in general, because dividend policy increases firms' substantial capital and has a close relationship with the investment policy, the dividend policies have a significant impact on firm value. In the results of this paper, we found that there is an announcement effect on dividends increase, also a positive (+) excess return is confirmed in dividend decrease and maintenance announcement. Second, in terms of the announcement effect of dividends, there are a signal hypothesis, hypothesis for reducing agent cost, and ‘bird in the hand’ hypothesis in view of high dividend preference. This study analyzed which hypothesis is more appropriate for accounting for the announcement effect among the three hypotheses. We divided all our sample into four groups depending on growth in sales, block-holders' ownership, firm-size and dividend yield as a proxy for signaling, principal-agent, firm-size and bird-in-the-hand hypotheses and we examined whether the cumulative excess returns differed for each group or not. Our results contradict the signaling and principal-agent hypotheses, which argue that management has an incentive to distribute information about the company's future profit to the market through dividend policy and the increase (decrease) in dividends leads to an increase in additional external borrowing, which makes the firm a strict monitoring target of the capital market and therefore plays a role in reducing agency costs. Contrastively, our results support the firm-size and bird-in-the-hand hypotheses. Keywords - Bird in the hand, Cash dividend, Event Study, Signaling Effect