Stock Price Reaction to Dividend Announcements

Dividend declaration is considered as one of the key focus areas of the organisation's financial policy. Majority of the companies consider it advantageous to declare the dividends, as it will have positive impact on its goodwill and the share prices. The dividend surprise conveys the same info...

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Bibliographic Details
Published inInternational journal of financial management Vol. 2; no. 2; p. 23
Main Authors Gupta, Shaveta, Dogra, Balram, Vashisht, A K, Ghai, Shevata
Format Journal Article
LanguageEnglish
Published New Delhi Publishing India Group 01.04.2012
Subjects
Abnormal returns
Dividend distributions
Dividend policy
Dividends
Earnings
Financial performance
Hypotheses
Investments
Prices
Stock prices
Stockholders
Studies
India
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Summary:Dividend declaration is considered as one of the key focus areas of the organisation's financial policy. Majority of the companies consider it advantageous to declare the dividends, as it will have positive impact on its goodwill and the share prices. The dividend surprise conveys the same information as earnings surprise. Managers use the increase of dividends to signal about the firm. It means that firms announcing dividend initiations and increases should experience positive abnormal returns, while firms cutting and reducing dividend suffers negative abnormal returns. In this background, the present study is an attempt to study the stock price reaction to 65 dividend announcements (increase) by 28 companies during the period 2006-09 listed on BSE 30 Sensex. The analysis had been undertaken using Event study methodology. The study exposed the fact that that stock prices does react to increase in dividend announcements and dividend announcements do possess signaling property. The study also found out that Indian stock market is inefficient. [PUBLICATION ABSTRACT]
ISSN:2229-5682
2229-5690