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Do Investors React to Stock Dividends?

Financial accounting theory predicts that there should be no market reaction to a company’s stock dividend. This is because the market value of the shares should decrease after the stock
distribution so that the shareholder still owns the same percentage of the company as before the stock dividend. However, sometimes theory does not hold in the real world! In this project,
you will pick a company that has issued a stock dividend and analyze the stock market reaction.
This is an individual project (no groups).
1. Pick any public U.S. company that has issued a stock dividend in the last 15 years.
2. Go to the SEC’s website (
and find the 10-K filings issued before and after the stock dividend. Provide a “before and after” picture of the equity section of the balance sheet. Do you see any differences
as a result of the stock dividend? Why? Also include any footnotes that mention the stock dividend.
3. Do a Google search on any media articles about the stock dividend. Also, check the investor relations section of the company’s website for any press releases. If you locate
any articles, provide a summary of what you find.
4. Examine the daily stock return to the stock dividend. Provide the cumulative stock returns for the windows below (where day 0 is the day of the dividend). Show how you
calculated your stock returns.
a. (0, 0) – the return on the day of the dividend
b. (-1, +1) – the 3-day return surrounding the dividend
c. (0, +2) – the return on the day of the dividend plus the following two days
d. (-2, +2) – the 5-day return surrounding the dividend
e. (-1, +8) – the 10-day return surrounding the dividend
5. Do you find any evidence of an abnormal stock return? Would you have made money if you bought or sold the stock short during any of these windows?
6. If there is a market reaction, do you think it was due to investors reacting to the stock dividend or to a different event? For example, if the company filed an 8-K during one of
these windows, the market reaction you find might be attributable to what the company reported in that 8-K. Check the SEC website to see if there were any other
filings during those windows.

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