Price Anomaly of Stock Dividend and an Investment Strategy
All of the data such as closing prices, stock dividends and market indexes used in this study is collected from Borsa Istanbul via Matriks Metastsock downloader software covering the period from 1997 to September 2018. The Matriks Metastsock software adjusts the closing price by taking stock dividend or cash dividend into account. Thus, it is not required to calculate closing price on ex-dividend or in the event windows in the data set. As seen from Table 1, stock dividends paid out by listed firms has been dropped over time. While 31% of the firms paid dividend as stocks in the period from 1997 to 1999, in the last four years this percentage dropped down to 8%. One of the reasons for dramatic change is deregulation. Before 2009, the regulation was forcing firms to pay out 20%-30% of their distributable income as stock or cash dividend and the regulation was annulled after 2008. Second main reason for the decreasing stock dividend is that the firms have not got special funds to pay out after IFRS was put in force in Turkey since 2008. Before IFRS, intangible assets inflated by a revaluation coefficient, published by Ministry of Finance, the increments accumulated under a special fund in owner’s equity part of the balance sheet. According to Turkish Commercial Code and capital markets regulations, these special funds can be paid out as a stock dividend. After IFRS, this type of fund accumulation is not possible anymore.