Impact of Dividend Announcement on Indian Bourses

Abstract

Investors have experienced superior gains from stock markets all around the world during the past one decade. Investors have two ways to make profits with stocks: capital appreciation and annual income in the form of dividend. Capital appreciation is possible in bullish trend. But in bearish market, capital appreciation is not possible; the other way to gain profit is dividend. Investors, it is assumed, consider dividend as a more important source of income, when there is no capital appreciation in stocks. Using an event study methodology, we find that despite the fact that investors do not gain significant value in the period preceding as well as on the dividend announcement day, yet, they can gain value in the post-announcement period. Investors do shift their security positions at the time of dividend announcement, which indicates that in post-announcement period, there is a possibility of information content in dividend announcement in National Stock Exchange (NSE). The dividend announcement conveys infor-mation to market traders; one would expect the impact of this event on the market’s valuation of the company’s share. It depends on the magnitude of the unexpected component of the dividends. The present study attempts to contribute information concerning the behaviour of Indian stock prices in relation to dividend announcement.