SHAREHOLDERS’ REACTION TO DIVIDEND DECLARATION: A TEST OF MARKET OF MARKET EFFICIENCY

Abstract

Dividend policy has been an issue of interest in financial literature since Joint Stock Companies came into existence. Dividends are commonly defined as the distribution of Earnings (past or present) in real assets among the shareholders of the firm in proportion to their ownership. Dividend announcements usually are considered as the positive signal to the shareholders and its positive impact on the share prices is also expected. 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 the Stock Exchange. The present study attempts to contribute information concerning the behavior of Indian stock prices in relation to dividend announcement. A standard event study methodology is adopted in this paper to examine the price reactions of 20 BSE (100) listed companies from 2008-2011 surrounding fourteen days of the announcement date.