Dividend increase effects on stock price in croatia

Various studies present results indicating that stock market reacts positively to cash disbursements via dividend initiations and increases but negatively to dividend decreases or eliminations. One of popular theory which tries to explain why the stock reacts the way it does is dividend signaling theory. The market may reevaluate share value on the basis of a change in dividend payout policy because dividends signal future movements in cash flows. This paper examines share price reaction in Croatia stock market to announcement of changes in dividends. Our aim is to investigate how announcement of dividend increase is associated with positive stock return. This phenomenon is known as dividend announcement effect.