The impact of dividend announcement on stock returns

Abstract

One of the factors that influences the stock return is announcement of dividend. This study specifically investigates the impact of dividend announcement on the share prices of the Indian auto companies. The objective of the study is to find out whether the investors respond to the dividend announcements and also to see whether there are any differences between expected and actual returns. The study considers a sample of 10 auto companies listed under the head CNX auto for the period 2007-2014. By using event study methodology for a window period of 41 days the study shows that there is significant negative impact of dividend announcements on stock prices especially over the entire post announcement period. Thus the study concludes that the existing shareholders prefer to earn capital gain instead of a dividend amounts at regular intervals.