Effect Of Dividend Announcement On Security Prices

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The Specific Purpose of this paper is to find the empirical evidences of stock dividend announcement on selected 20 companies of Indian stock market and try to investigate the existence of abnormal returns. Sample data was drawn from companies listed on the BSE that have announced dividend over the period January 2008 through December 2011. Daily lognormal returns of stock prices understudy were examined for the dividend announcement effect using descriptive statistics and paired sample t-test. No significant Average Abnormal Returns on event day during any period of dividend announcement, whereas Cumulative Average
Abnormal Returns has been found significant on event period 57 times positive move, 49 times negative move and 64 times constant or near to zero volatility. The results of paired t-test for means have shown that there are significant differences in average number of transactions before and after announcement during the period 2008 to 2011 for the companies like HUL, ITC, Jaiprakash, L & T, Reliance Industry, SBI, Tata Motor, and Wipro. Further research can be extended using other event studies on Indian Market and Industry wise study can also be carried out. This research will help retail investors to identify the announcement effect and will also help market to avoid mispricing. Emphasis has been given on the collection of prices and dividends data, the authenticity have also been considered meticulously by crosschecking data on different sources.


The Bombay Stock Exchange is known as the oldest exchange in Asia. It was initiated its operation in
1850s, when stockbrokers gather under banyan trees in front of Mumbai’s Town Hall. The location of these
meetings frequently changes as number of stock brokers increases. Then this association moved to Dalal Street in
1874 and in 1875, became officially “The Native Share & Stock Brokers Association”. The BSE became the first
recognized stock exchange by the Indian Government in 1956. More than 5000 companies are listed in BSE. The
Bombay Stock Exchange uses the BSE Sensex, an index of 30 large and most liquid companies. The BSE Sensex
was developed in 1986; this index is a proxy to measure the overall performance of stock market and an economy.
The electronic trading system was introduced in 1995 prior to that the trading was organized in an open cry floor.
Investors generate returns in two ways firstly in the form of dividend and secondly by way of capital appreciation.
The study focuses the signal of pre and post announcement of dividends. The impact of dividend announcement
over stock value has been a belligerent issue in behavioral finance over last few decades. In emerging countries like
India, the issue is still nebulous and there are various empirical evidences on the semi strong form of efficiency
which encouraged investigating the impact of announcement of dividend on selected sock price in Bombay Stock
Exchange (BSE), which will contribute to the information efficiency to the investors, managers and policy makers.
Literature review
The Efficient Market Hypothesis precludes the competitive pricing in the random walk model. The efficient market hypothesis asserts prices are random in nature which means no individual or group of people able to predict the stock or indices movement. The Random Walk Model was observed by various researchers.


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