Page 1 of 6
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 03
March 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 341
A Study on Analysis of Interim Dividend
Announcements on Stock Prices in N.S.E
K. Ashok Kumar
Research Scholar Dr.V.V.Madhav , Associate Professor Department Of Management Studies
Klef, Guntur
ABSTRACT
Public sector units (PSU) in India are considered
as major contribution to Indian Economy and they
are growth indicators for GDP. Some PSU are
considered as sick units due to their
dysfunctionality while some PSUs Has expanded
their operations. There is need in the study of the
behavior of the PSUs in providing returns to share
holders and study how PSUs are contributing to
wealth maximization. There are number factors to
analyze and most important factor to analyze is
Interim dividend announcements which are given
by companies before Annual final dividends. Some
PSUs announced interim dividend announcements
twice in year so there is need to study effect of
interim dividend announcement on stock prices.20
PSU announced interim dividend announcements
in 2017 and standard event study methodology is
used for study.. The semi strong efficiency of
Indian market is analyzed. Some PSU Reacted
positively and some has reacted negatively. Cash- rich PSUs, such as ONGC, SAIL, BSNL and
NTPC, are under pressure to declare interim
dividends as the government looks at these
companies to raise as much as Rs 10,000 crore to
shore up its increasingly fragile finances. The
government, which is seeing declining tax
collections amid a slowing economy, will be the
biggest beneficiary of any dividend payouts since it
holds a bulk of the equity in these companies. The
study also used market model for PSU listed in
N.S.E and companies returns showed the positive
and negative Abnormal returns during the study. T
test analysis is conducted to test the significance of
abnormal returns.
Key words: Semi strong Efficiency, event study,
Interim Dividend announcements.
I. INTRODUCTION
The dividend is the cost of equity capital to equity
shareholders. The dividend announcement has an
impact on the market price of the shares; the market will
react positively, if the dividend is upto the expectation
level of the equity investors. At the same time if the
dividend announcement is not the expectation level of
the shareholders, the market reaction will in bear trend
for that particular scrip.
In recent years the Securities and Exchange Board of
India (SEBI) has initiated a number of reforms to make
the Indian stock market at par with developed stock
markets of the world. One of such reforms is
compulsory quarterly earnings announcement and
dividend announcements. This reform is based on the
experiences of regulatory bodies around the world as
well as the compulsions of domestic markets. The
compulsory announcements will have an impact on the
stock market. Researchers around the world have
studied some of these impacts and it is considered as an
event study. Event studies focus on the impact of
various announcements like bonus issue, right issue,
stock splits, earnings, dividends, mergers and
acquisitions, buyback of stocks, etc.
Dividend announcements are one of the most important
events and the studies on stock market reaction to
earnings information are included in the semi-strong
form of efficient market hypothesis (EMH). The semi- strong form of efficient market hypothesis states that
stock prices reflects all the publicly available
information instantaneously and accurately. In this
paper an attempt is on the stock market reaction to
dividend announcements in India in the light of various
previous studies conducted in various developed
Page 2 of 6
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 03
March 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 342
countries of the world such as the USA, the UK,
Australia, etc.
II. OBJECTIVE AND HYPOTHESIS
Objective To examine the stock market reaction to
dividend information Hypothesis Since this study
empirically examines stock market reaction to dividend
information the hypotheses being tested are:
H01: The investors cannot earn abnormal returns by
trading in the stocks after the Dividend announcements.
H02: The average abnormal returns and the cumulative
average abnormal returns are Close to zero.
H03: The average abnormal returns occur randomly.
Sample
The present study is based on secondary data and 14
public sector units listed in N.S.E are used for study
which announced interim dividend decisions for the
year 2017. Daily closing prices of NIFTY 50 and 100
are taken to analysis and stock prices of different psu s
are taken. Data is collected from N.S.E India, Money
control.
Data
We have used three sets of data in this study. The first
set of data consists of dividend announcement made by
the sample companies. This includes the dates on which
the Board of Directors meets and approves and
announces the dividend of the company. The second set
of data consists of dailyadjusted closing prices of the
stocks selected for the study at the National Stock
Exchange for the period covered by this study. Daily- adjusted closing prices are used in the study as these are
assumed to reflect the consensus of the market
participants regarding price of the stock at the end of the
trading. The third set consists of the CNX S&P NIFTY
index of ordinary share prices compiled and published
by the National Stock Exchange on daily basis. Data is
collected from NSE website. Table 1 clearly shows the
15 selected companies along with their NSE symbol and
date of Dividend announcement.
Table 1 Sample Companies with Dividend
Announcement Dates
STATEMENT OF THE PROBLEM
This study investigates the stock market reaction to cash
dividend announcements for the period from
January2009 to December-2009. In particular, this
paper examines the stock price response to company
announcements about dividend to shareholders. As a
matter of fact dividend announcements usually are
considered as the positive signal to the shareholders and
its positive impact on the share prices is also expected.
Using an event study methodology we find that despite
of 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 indicate that in
post announcement period there is a possibility of
information content in dividend announcement in NSE.
In a country like India where the economy is emerging,
the issue is still unresolved and there is a diverse
substantiation over the matter which has encouraged us
to examine the impact of dividend announcement over
share price, which may carry valuable information to
the investors, researchers and policy makers
III. METHODOLOGY
In this paper two-stage approach is used to test the stock
price responses to dividend announcement. The first
stage consists of estimation of parameter like beta based
on the ex-post returns on stocks and market index, and
expected returns on each of the stocks based on the
market model. In the second stage these estimated
parameters are used to calculate abnormal returns
around the event day. In this study, the date of dividend
announcement is defined as day 0 or event day. If event
Page 3 of 6
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 03
March 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 343
day is a non-trading day then the immediately following
trading day is considered as an event day. Pre- announcement period includes 30 trading days prior to
the dividend announcement date, i.e., days -30 to -1.
Post announcement period includes 30 trading days
after the dividend announcement i.e., days +1 to +30.
Thus, we have taken the event window of 61 trading
days (including day 0 as the event day). The estimated
abnormal returns are averaged across securities to
calculate average abnormal returns (AARs) and average
abnormal returns are then cumulated over time in order
to ascertain cumulative average abnormal returns
(CAARs). In this paper the market model to measure
the returns of stock that is related to market movement
is used. Market model was developed and suggested by
Sharpe.
Market model can be expressed mathematically as:
Where,
E (Rit) = Expected return on security ‘i’ during time
period‘t’
αi = Intercept of a straight - line or alpha coefficient of
ith security.
βi = Slope of a straight - line or beta coefficient of ith
security
Rmt = Expected return on index (CNX S&P NIFTY
Index in this study) during period‘t’
e it = Error term with a mean zero and a standard
deviation which is a constant during time period ‘t’.
Paper used raw returns. For the values of αi a proxy of
6% per annum interest on treasury bills is used and for
βi values are estimated by using the formula that is
described in this paper. Therefore, the following
simplified model of regression is used for estimating the
returns on each security by taking the actual returns on
market, Rmt.
The abnormal returns are computed using the following
model:
The abnormal returns of individual security are
averaged for each day surrounding the event day i.e., 30
days before and 31 days after the event day. The AAR
is the average deviation of actual returns of a security
from the expected returns. The following model is used
for computing the average abnormal returns (AARs):
Since the security’s overall reaction to the dividend
announcement or the event will not be captured
instantaneously in the behavior of average abnormal
return for one specific day, it is necessary to accumulate
the abnormal returns over a long period. It gives an idea
about average stock price behavior over time.
Generally, if market is efficient, the CAAR should be
close to zero. The model used to ascertain CAAR is:
Where,
βi = Slope of a straight line or beta coefficient of
security ‘i ’
N = Number of observations
Rmt = Return on market index ‘m’ during time period
‘t’
Rit = Return on security ‘i’ during time period ‘t’
