This study assesses the reaction of the Indian stock market on corporate dividend announcements. The study focuses on the reaction of the stock markets specifically to dividend announcements by banks. Dividend announcements are considered to convey important information to market participants. Dividends are also considered to be major determinants of shareholders’ wealth. A sample of ten banking companies having the highest market capitalization has been considered. Event study methodology with the OLS market model is used to calculate abnormal returns and t-test is employed to check the robustness of the abnormal returns. The result provides evidence that dividend announcements convey positive information. Overall, empirical results indicate that the stock prices of Indian banks are impacted by dividend announcements indicating inefficient market in semi-strong form.
Keywords: Banking Companies, Event Study, OLS Market Model, Market Efficiency, Dividend Announcements JEL Classification:G35, G14, G21
The stock market is a medium to allocate and channelize savings or idle funds to the most productive areas of the economy (Chakraborty, 2011). Any economy, to a great extent, depends on the efficiency of the stock market