Impact of Corporate (Dividend) Action on Stocks in India

Abstract

The investment decision is influenced by many factors of which one such factor is return. The shareholders may get return in the form dividend which affects the share prices. The behavior of stock prices is unpredictable as price movement for different activities will move in different ways. The stock price movements can be divided into Economic and corporate activities. The impact of economic activities will be more or less same on all the stock prices while impact of corporate action varies from one stock to the other. Dividend payment is one of the important corporate actions that will have an impact on the behavior of stock prices. This research highlights the impact of dividend payment on the behavior of stock prices. To understand this behavior, ten stocks have been randomly picked which has paid the dividend in 2016. The researchers have used popular event window study and cumulative returns. In this regard, the researchers have picked two dates, namely dividend announcement date and the other is dividend effective date. The paired sample t-test is employed to compare cumulative returns before and after dividend announcement.

Keywords: Stock price behavior, Corporate actions, Economic Activities, Dividend payment, Event window, Cumulative returns, Announcement date and Effective date

JEL Classification: G1, G3