Dividends: Effects of ad on share prices

Elcio Euzébio Rodrigues Junior FHO/Uniararas Araras São Paulo, Brazil E-mail: elciorodriguesjr@yahoo.com Luiz Eduardo Gaio FHO/Uniararas Arara São Paulo, Brazil E-mail: luiz.gaio@ymail.com Dividends: Effects of ad on share prices ABSTRACT This study discussed the effect of the dividend payment announcement in share price, and specifically compared the impact of the dividend payment of the announcement in the various sectors of the companies comprising the Ibovespa in order to find out whether, following the announcement and payment there was variation in share prices. Examined whether the dividend payment disclosure of occurrences in IBOVESPA companies, which took place between January 2012 and December 2013. Was also analyzed the relationship between the amount of the dividend paid per share and the variation of the share price with the objective of find out if the action purchasing strategy in dividend disclosure is an alternative investment that will generate gains to investors. However, the sectors studied, only the sector "Other" obtained a result above the t-statistic with 95% confidence interval, and can state that this sector only the action of purchasing strategy in the dividend announcement is effective. Keywords: Proceeds, dividends, interest on capital, the stock market. 1. INTRODUCTION The stock market has achieved a higher valuation compared to other investment options such as savings, the national treasury bonds, CDI of banks and other fixed income options, and is one of the alternatives that enables the investor to achieve higher yields. As the stock market a subject that arouses great interest among investors, it is necessary to understand the behavior of changes in stock prices and there are factors that influence the result of the proceeds from those who choose this type of investment and strategy. This article we intend analyze whether the announcement of the payment of proceeds, dividends and interest on capital, influences the value of the shares in the stock market and the action of buying strategy at the time of announcement impacts positively or negatively on the investor's income. With This study we hope to answer the following question: The announcement of the payment of proceeds, dividends and interest on capital, influences the share price? The principal objective is to verify that this announcement by the company, generates effect on the stock price which are components of the Bovespa index - Ibovespa. And in specific we aim to: - Compare the impact of the announcement in the sectors of Ibovespa. - Find out if, after the announcement and payment of dividends, there is variation in share prices. - To analyze the action of the purchasing strategy in the proceeds of the payment of the ad is effective. Society for Business Research Promotion 11

To answer the question selected the data of the companies listed in the Bovespa index - Ibovespa - the fourth quarter of 2014 and use the data to the disclosure of payments of dividends that occurred in the years 2012 and 2013, a total of 285 events, calculating the variation of stock prices in three distinct periods, as follows: a) five days before the announcement date, b) the announcement until the payment of the proceeds c) the five days after the payment. With the results, we analyzed what impact the announcement and the payment of the proceeds has on the asset. 2. THEORETICAL REFERENCE 2.1 The financial market To Pinheiro (2005) financial markets is defined as the mechanism or environment through which produces exchange financial assets and determine their prices. Are markets in which financial resources are transferred from surplus units to the deficit. According to Assaf Neto (2011), finance is an area of knowledge and is divided into three major segments: financial market, corporate finance and personal finance. In this article, our object of study specifically the segment of the financial market as it is the area that studies the behavior of markets, their various securities and traded property values and financial institutions that operate in this segment. In turn, the financial market is subdivided into four large segments of financial intermediation: Money market, credit market, capital market and foreign exchange market. 2.2 Capital Market According to Pinheiro (2005), the capital market can be defined as a set of institutions dealing with stocks and securities, with the objective of channel resources buyers agents for selling agents. In practice, the capital market is a distribution system of securities is intended to enable the capitalization of companies and provide liquidity to the securities issued by them. Arose when the credit market no longer meet the needs of the productive activity. Its appearance was based on two principles: a) contribute to economic development, and b) enable and guide the structuring of a pluralistic society. The capital market can be divided into two major segments: an institutionalized and has not been institutionalized. The capital market can be subdivided into the stock market, which carries out financing through own resources and loans and financing market, in which process third-party fund raising (ASSAF NETO, 2011). From the standpoint of the company, access to the capital market is divided into two phases: a) primary market - The company has the inflow of cash resources, and b) secondary market - Transactions in shares of the company does not directly affect the financial position short-term company. (Lameira, 2003) 2.3 Shares According to Lameira (2003) a share is the smallest fraction in which one can divide the capital stock of a corporation. Can be traded on stock exchanges or counter, if a public company, or simply compose the capital of a closed SA, without being subject to negotiation. The shares are divided into: a) common - They give law by voting to elect directors, amend the bylaws authorize the raising of funds and decide on consolidation, merger and spin-off, b) Preferred - those that grant their receipt of rights holders minimum dividends, if set out in statute, and preference over common stock in the event of liquidation. Stock is a security representing a share (fraction) of the share capital of a company, with indeterminate and negotiable emission in the market. The owner the share is a partner (shareholder) of the company, and have rights and obligations to the society within the limits of its shareholding. There are two basic types of stocks: a) common - provide their holders the right to vote at general meetings of shareholders and profit sharing of the company upon receipt of dividends, and b) preferred - are not entitled to vote, but offers some advantages or preferences, as the priority in receiving dividends, often at a higher Society for Business Research Promotion 12

percentage, and preference in capital reimbursement in the event of dissolution of the company. (ASSAF NETO, 2011) 2.4 Proceeds 2.4.1 Dividends Dividends represent part of the net income of a company established in a certain year, and are distributed in cash to shareholders. The dividend yield is the gain offered by action to investors by paying dividends and is calculated by the ratio of dividends per share paid by the company and the market price of the stock and may be the beginning, middle or end of period (ASSAF NETO, 2011). For Fortuna (2011), dividend is the part of distribution of profits of a company, currency, to its shareholders. The law requires that at least 25% of net income must be distributed to shareholders. The dividends are not deducted from the income tax - IR, and social contribution on net income - CSLL - to be paid by the companies. 2.4.2 Interest on capital Companies can choose to pay to a certain limit, its shareholders the payment of interest calculated on capital, instead of distributing dividends based on the profits verified. This form of compensation brings tax advantages to the company, as these interest payments, unlike dividends paid are considered as deductible for purposes of calculating income tax (ASSAF NETO, 2011). Interest on capital was created by the Law 9249 of 26.12.1995, to compensate for the end of the indexation of corporate balance sheets. Through this instrument, the company is authorized to pay the value of shareholder equity to the value of the TJLP. The amount to be received by the shareholder suffers IR discounts at source at the rate of 15% (Fortune, 2011). 2.5 Empirical Studies Novis Neto (2003) describes that the empirical analysis of the behavior of stock prices after the dividend payment announcement in a sample of 163 events between 1998 and 2000, found a direct relationship between the dividend yield and the cumulative abnormal return these actions in the post-dividend payment period, with a cumulative abnormal return of 21.97% in the 90 days after the event for companies that paid higher dividends, of 5.16% for companies paid interim dividends and - 15.50% for companies that paid lower dividends. Bruni et al. (2003) on the effect of the distribution of the proceeds on the prices of 27 stocks traded on Bovespa ad in 2002 concluded that the results indicated the absence of abnormal returns around the date of the event, indicating that either the market anticipates the information or ad information is not relevant. However, the authors found positive abnormal returns for stocks with dividend yield above the median, indicating investors' preference for stocks with more aggressive policies dividend distribution. Legat (2003) analyzed the effect of the distribution of dividends, the return of market shares. We used the Dividend Yields of shares, forming two theoretical portfolios of shares per year, containing the 12 stocks of larger Yields and one with the smallest and / or no Yields. The returns were calculated and compared with each other and with the Ibovespa and the result obtained by portfolios with Higher Yields of shares was greater than the return of the portfolios with low and / or zero Yield in all periods and even greater than the return of the Bovespa index, thus indicating that there is evidence that the market tends to price those actions that best represent companies with greater distribution of proceeds. Kuronuma et al. (2004), through an event study, describes the behavior of prices depending on actions of different dividend policies adopted by companies and analyzed the relationship between the dividend yield and the cumulative abnormal return (CAR) in the post-payment period dividends on a sample of 22 non-financial companies listed on the São Paulo stock Exchange (Bovespa) between the years 2000 and 2003. the results showed Society for Business Research Promotion 13

evidence of a positive relationship between the dividend yield and the cumulative abnormal stock returns in the 60 trading sessions after payment of dividends and interest on capital for shares with dividend yield above the median. Zanotelli (2011) analyzed the strategy where the investor receives the proceeds company in which he invested, reapplies the buying company stock in the market. The result of the method applied in five payers of dividends revealed a far superior performance to savings, Selic rate and exceeded, on average, by 129% Brazilian stock index, Ibovespa. 3. METHODOLOGY This article will be developed through descriptive research. According to Gil (2002), in a given sample description objective is descriptive of the characteristics, which can also be prepared in order to identify possible relationships between certain variables. We will continue in this article, the quantitative method of scientific research. We will use data from secondary origin, corresponding to the daily prices of stock prices belonging to the Bovespa Index (Ibovespa) in the fourth quarter of 2014, beginning data collection on January 2, 2012 to December 30, 2013. The data will be collected on the Yahoo Finance website and the payment dates and other information about the proceeds are available on the BM & FBOVESPA website. The first step of the research refers to data collection and separation of samples of stock prices by company within two years of analysis. For this, three samples will be considered, as follows: Sample 1 - Refers to the period before the announcement, corresponding to five days; Sample 2 - Average prices in the period between the announcement and the payment of dividends. The number of days varies with the dividend policy of each company; Sample 3 - later period the payment of the dividend, equivalent to five days. The second step concerns the calculation of the mean of samples per company, as 1 expression. where P is the price at time t (1) The third step corresponds to the collect of dividends paid during the period. Will be used for this, the indicator Dividend per Share (DPA), estimated as 2 expression. (2) The fourth step refers to the calculus of variations in average prices of shares, as expression 3 and 4. Where V1 corresponds to the variation between the sample 2 is 1 and V2 the variation of the samples 1 and 3 The fifth step corresponds to the comparative analysis between the amount paid for the dividend (DPA) with the variation of the shares by the announcement (V2). The sixth and final step refers to comparing of changes between companies, to measure the behavior of groups of actions and their segments. (3) (4) Society for Business Research Promotion 14

4. RESULTS AND DISCUSSION Table 1 shows the main sectors of the economy, according to the classification of the BM & FBovespa, and has in its composition the number of dividend payment occurrences and interest on capital that happened in the period of this study. It is observed in the data in Table 1 that the sector had the highest number of events was the financial, represented by financial institutions of the market, with the occurrence of eighty events during the period. The sector with the lowest representation was the oil and gas, with four events. This explains why the financial sector is attractive to investors who invest with the objective of a dividend. About the impact of advertising, analyzing the period ranging from five days preceding the announcement to the announcement date and compared with the period from the day after the announcement until the payment of the dividend, we obtained the results as shown in Table 2. Through the data in Table 2 shows that, considering a 95% confidence interval for distribution you with asymptotic limit of 2.1, has only the sector "Others" has different averages since the 3.31 statistic is greater than the threshold 2.1. This means that for this sector announcement impacts the fluctuations of the stock during the period analyzed. The other sectors showed results below the limit of 2.1, indicating that the ad can not be considered influential in the share price. By analyzing the impact of the dividend payment, in a sample comprising the five days before the announcement date and the five days following the payment of the dividend by the company obtained the results shown below in Table 3: It is observed by Table 3 which again the sector ""Other"" was the only one in which the test statistic has accepted the hypothesis (H0) of equal average price considering the impact of the dividend payment. Which means that in this sector the dividend payment announcement influences the stock price of this group. The other sectors had results below the test statistic of 2.1, indicating that there is no evidence of statistical summary on the payment of dividend to the share price in the market. The following are, in Table 4, the comparison of data between the effect caused by the dividend payment announcement with the value of the DPA (Dividend per share) paid by the company, where we got the results that are described below: As Table 4 shows, the only sector that the action purchasing strategy based on dividend payments that is statistically proven is the "Other" sector, presenting results for the Test t of 4.51, above the average value of the statistic is 2.1 for a 95% confidence interval. While all sectors showed positive results compared between periods, all other sectors showed results below the statistical confidence interval, indicating that the action of purchasing strategy in the ad is not actually proven by statistics. 5. CONCLUSION This study aimed to verify that the announcement of dividend payment, the company generates effect on the stock price which are components of the index BM & FBovespa, compare the impact of the announcement in the sectors of Ibovespa and find out if, after the announcement and payment of dividends, there is variation in share prices. The results around the event (announcement and dividend payment) has highlighted only the actions of the sector Others suffer positive influence, statistically above the average rate of Test-t and therefore only those actions had earned with the strategy of purchase of shares in the dividend announcement, other actions have had positive results, but insufficiently below the 95% confidence interval, which did not allow us to claim that the strategy would become effective in these scenarios. Society for Business Research Promotion 15

We believe that this study may assist investors and savers to present more an index that contributes to the decision-making at the time of investment for choosing the best strategy for applications and training of the stock portfolio. Depending on the selection of the sample is a period covering only two years of the history of the shares, the number of events being restricted to just 283 occurrences and to be composed of only actions that are part of the BM & FBovespa index. It is suggested to continue this study with larger sample with the inclusion of other shares listed on the BM & FBovespa and comprising a sample with longer time for possible historical evidence of variations in share prices with bases on ads and dividend payments. REFERENCES ASSAF NETO, A; LIMA, F. G. (2011) Curso de administração financeira. 2. ed. São Paulo: Atlas. BM&FBovespa. (2014) A BM&FBovespa. Disponível em: <www.bovespa.com.br>. Acesso em 10 nov. BRUNI, A. L.; FAMÁ, R.; FIRMINO, A.; GAMA, A.; (2003) O anúncio da distribuição de dividendos e seu efeito sobre os preços das ações: um estudo empírico no Brasil. In: III Congresso USP de Controladoria e Contabilidade (Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo), 2003, São Paulo. Anais. São Paulo: USP, p.1-20. FORTUNA, E. (2011) Mercado Financeiro: Produtos e Serviços. São Paulo: Qualitymark. GIL, A.C. (2002) Como elaborar projetos de pesquisa. São Paulo, 5. KURONUMA, A. M.; LUCCHESI, E. P; FAMÁ, R. (2004) Retornos anormais acumulados das ações no período pós-pagamento de dividendos: um estudo empírico no mercado brasileiro. In: Congresso USP de Controladoria e Contabilidade. LAMEIRA, V. J. (2003) Mercado de capitais. Rio de Janeiro, ed. 2: Forense Universitária. LEGAT, S. V. V. (2010) Efeitos da Distribuição de Proventos em Dinheiro no Retorno das Ações do Mercado de Capitais Brasileiro. 2004. 100f. Dissertação (Mestrado em Engenharia de Produção) PPGEP/UFSC, Florianópolis SC, Brasil. MATIAS- PEREIRA, José. Manual de metodologia da pesquisa científica. Atlas. NETO, J. A. N.; SAITO, R. (2003) Pagamentos de dividendos e persistência de retornos anormais das ações: evidência do mercado brasileiro. Revista de Administração da Universidade de São Paulo, 38 (2). PINHEIRO, J. L. (2005) Mercado de capitais: fundamentos e técnicas. Atlas. Yahoo. (2014) Yahoo Finanças. Disponível em: <https://br.financas.yahoo.com/ >. Acesso em 10 nov. 2014. ZANOTELLI, J. A. (2011) Realocando proventos: uma simulação envolvendo ações de cinco empresas listadas na Bm&FBovespa. Porto Alegre, 2011. Monografia (Programa de Pós Graduação). UFRGS. Society for Business Research Promotion 16

Table 1: Sample Number of events by sector of the economy Sectors Total Events Consumer and retail 51 Energy and Sanitation 38 Financial 80 Holding 13 Property & Construction 17 Industrial 9 Mining 8 Other 8 Oil and Gas 4 Petrochemical 5 Steelmaking 21 Telecommunications 13 Transport and Logistics 16 TOTAL 283 Table 2: Impact of the notice (comparison between sample 2 and sample 1) Sectors Average Test t p-value Sum Consumer and retail R$ 0,18 0,80 0,21 R$ 9,52 Energy and Sanitation R$ 0,07 0,51 0,31 R$ 2,63 Financial -R$ 0,05-0,57 0,28 -R$ 0,05 Holding -R$ 0,24-0,78 0,22 -R$ 3,12 Property & Construction R$ 0,07 0,84 0,21 R$ 1,19 Industrial R$ 0,03 0,12 0,45 R$ 0,26 Mining -R$ 0,31-0,42 0,34 -R$ 2,48 Other R$ 0,36 3,31* 0,01* R$ 2,90 Oil and Gas R$ 0,29 0,52 0,32 R$ 1,15 Petrochemical R$ 0,75 1,31 0,13 R$ 3,74 Steelmaking -R$ 0,06-0,26 0,40 -R$ 1,21 Telecommunications R$ 0,35 1,17 0,13 R$ 4,49 Transport and Logistics R$ 0,03 0,36 0,36 R$ 0,44 TOTAL R$ 0,11 0,53 0,26 R$ 19,46 Note: (*) value above the t-statistic for a trustee interval of 95% Society for Business Research Promotion 17

Table 3: Impact of payment (comparing sample 3 and sample 1) Sectors Average Test t p-value Sum Consumer and retail R$ 0,11 0,33 0,37 R$ 5,70 Energy and Sanitation R$ 0,05 0,26 0,40 R$ 2,04 Financial -R$ 0,05-0,31 0,38 -R$ 4,13 Holding -R$ 0,28-0,73 0,24 -R$ 3,59 Property & Construction -R$ 0,10-0,68 0,25 -R$ 1,65 Industrial R$ 0,36 1,17 0,14 R$ 3,22 Mining -R$ 0,85-0,75 0,24 -R$ 6,80 Other R$ 0,30 3,39* 0,01* R$ 2,39 Oil and Gas -R$ 0,20-0,21 0,42 -R$ 0,79 Petrochemical R$ 0,59 0,83 0,23 R$ 2,93 Steelmaking R$ 0,00 0,00 0,50 R$ 0,01 Telecommunications -R$ 0,02-0,05 0,48 -R$ 0,23 Transport and Logistics -R$ 0,04-0,38 0,35 -R$ 0,69 TOTAL -R$ 0,01 0,22 0,31 -R$ 1,59 Note: (*) value above the t-statistic for a trustee interval of 95% Table 4: Comparison of the amount of the dividend and the impact ad with the value of the DPA Sectors Average Test t p-value Sum Consumer and retail R$ 0,47 1,31 0,10 R$ 24,05 Energy and Sanitation R$ 0,97 3,79 0,00 R$ 37,05 Financial R$ 0,15 0,83 0,20 R$ 11,83 Holding -R$ 0,15-0,46 0,33 -R$ 1,90 Property & Construction R$ 0,15 1,15 0,13 R$ 2,60 Industrial R$ 0,43 1,42 0,10 R$ 3,90 Mining R$ 0,14 0,11 0,46 R$ 1,10 Other R$ 0,57 4,51* 0,00* R$ 4,54 Oil and Gas R$ 0,43 0,36 0,37 R$ 1,71 Petrochemical R$ 1,17 1,65 0,09 R$ 5,87 Steelmaking R$ 0,18 0,53 0,30 R$ 3,71 Telecommunications R$ 0,67 1,55 0,07 R$ 8,71 Transport and Logistics R$ 0,22 1,93 0,04 R$ 3,47 TOTAL R$ 0,42 1,44 0,17 R$ 106,63 Note: (*) value above the t-statistic for a trustee interval of 95% Society for Business Research Promotion 18