Abstract

This study empirically analyzes the effectiveness of the dividend procedure improvement measures introduced by the government in 2023 by examining market reactions at the time of dividend announcements. The traditional dividend practice in the Korean capital market, characterized by 'setting the record date before determining the dividend amount,' has inherent structural limitations that force investors to make investment decisions without knowing the dividend amount, thereby exacerbating information asymmetry. In response, the government recommended a new approach where the dividend record date is set after the dividend amount is determined, allowing investors to make informed decisions. Using a sample of 2,258 firm-year observations of Korean listed companies that announced year-end dividends in 2024 and 2025, this study analyzes the Cumulative Abnormal Returns (CAR) around the dividend announcement date. The empirical results show that firms that set the dividend record date after the dividend announcement exhibit statistically significantly higher CAR from one day before to three days after the announcement compared to firms that maintained the traditional method. This suggests that investor decision-making efficiency has improved due to enhanced predictability and the feasibility of immediate investment decisions based on disclosed information. Additional analysis reveals that the effects of this institutional improvement are more pronounced in firms with low dividend yields, firms with low foreign ownership or low analyst coverage (information-neglected firms), and firms with low major shareholder ownership. These findings suggest that the modernization of dividend procedures can mitigate information blind spots in the capital market and contribute to the protection of minority shareholders. The results demonstrate that the government's efforts to improve dividend procedures are positively evaluated by the market and provide policy grounds for resolving the 'Korea Discount' and establishing a shareholder-centric management culture.

Keywords

• Dividend Announcement
• Dividend Record Date
• Cumulative Abnormal Return (CAR)
• Information Asymmetry

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