Abstract:
Dividend Policy is an important decision area in the field of corporate finance. A large body of empirical research has documented that in imperfect capital markets with information asymmetries, the announcement of dividend changes affects shareholder value. However, very little research efforts have been made so far on the dividend behavior of IT sector in India. The present study is an attempt in this direction. This study investigated whether the dividend announcements in the forms of interim and final convey any information to the Bombay Stock Exchange. Fulfilling the study, the cumulative abnormal returns and the average abnormal return were calculated by applying the event study analysis on daily data with market model adjustments on 724 dividend announcements of 48 firms during the period 2000 to 2016. This paper utilizes event study methodology to examine stock price reactions of IT Sector surrounding 21 days event window of the announce- ment. The empirical analysis of IT Sector firms for the period of sixteen years reveals that the dividend announcement signals and investors do react on the basis of information revealed resulting in to impact on share prices. T test conducted statistically signifies impact of dividend announcement on share prices. The Section I, presents theoretical background and literature review. Section II describes the data and methodology. In Section III, we examine empirical results of the relation between dividend announcement and stock prices in Service sector measured in terms of abnormal earning. The t-test is used for analyze statistical significance. Section IV concludes the paper.
