Impact of Financing Constraints on Market Response after an Increase in Company Dividends

The constraints of financial resources lead to the loss of investment opportunities for companies operating in competitive industries. The level of this financial constraint affects dividend policies. If the company faces a financial constraint, the decision to increase dividends will exacerbate financial constraints. The purpose of this study is to investigate the effect of financing limitation on the market response following an increase in company dividend. The research carried out in terms of target type is a part of applied research and the research method is correlated in terms of nature and content. The research has been done within the framework of deductive-inductive reasoning and a panel analysis has been used to analyze the hypotheses. Research data was collected from 180 companies between the years 2007- 2015. The results showed that firms with limited funding involve in a weaker market reaction to a profit increase of dividends than unconstrained companies. Additionally, for larger firms and higher book value, market response was greater. The existence of a limitation in financing when dividing dividends into shareholders would weaken the firm's operating status. And ultimately leads to a reduction in stock returns, losing the attractiveness of its stock to shareholders.