Announcement Effect of Dividend on the Stock Price of Enlisted Companies in Developed Countries: A Comparative Study between London Stock Exchange & New York Stock Exchange

Abstract

Stock market reactions in regards to positive, negative and constant dividend announcement have been empirically studied in financial literature. However, we have not seen any direct comparison between two large stock markets using the data from the same period. We have not seen many researches on these markets during recession period in regards to dividend announcement. In this study, data from New York and London Stock Exchange has been collected in order to demonstrate the effect of dividend announcement on share price or shareholders’ value. Companies enlisted on NASDAQ 100 and FTSE 100 have been used in order to represent NYSE and LSE market respectively. A recession period has been selected in this study on purpose to see whether there is any difference between results for normal economic period and economic recession. We have used 213 announcements from LSE while 189 dividend announcements from NYSE within 2006 to 2008 to demonstrate how market reacted to announcements. A standard and well accepted method has been used to analyze the data. We found out that market does not react at all to any dividend announcements for NYSE where as market reaction for LSE is different from what we have seen till date. A positive dividend announcement results in negative market reaction while a negative dividend announcement results in positive market reaction in London Stock Exchange. The purpose of this study was to figure out the market reaction to dividend announcement during recession period and therefore, rationales behind the results of this study have been left for further study.

Keywords: Dividend Announcements, Stock Price Reactions, NYSE, LSE