Corporate Announcements and Market Efficiency: A Case on Indian Capital Market

International Journal of Business and Management; Vol. 16, No. 8; 2021

25 Pages Posted: 28 Jul 2021

See all articles by Nagendra Marisetty

Nagendra Marisetty

REVA Business School (RBS), REVA University

Pardhasaradhi Madasu

Siva Sivani Institute of Management (SSIM)

Date Written: July 12, 2021

Abstract

Capital markets being the backbone of the economy, are expected to be functioning efficiently. Efficiently-priced financial markets are considered a catalyst for the economic growth of the nations (Malkiel, 2010). Efficient markets are the reflection of security valuations. In an informationally efficient market, no one can beat the market and make abnormal returns based on the information because the information is instantaneously observed in the stock prices. The current paper analyses the market efficiency of three of the most popular corporate events, i.e., announcement of cash dividends, bonus issues, and stock split in the Indian context. The sample is 2253 pure cash dividend announcements (627 large-caps, 552 mid-caps, and 1074 small-caps), 152 bonus issue announcements (49 large-caps, 33 mid-caps, and 70 small-caps), and 181 stock split announcements (35 large-caps, 34 mid-caps, and 112 small-caps) were used for this study. Event methodology market model used to calculate Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR).
The results of the study have few findings which are contradictory to the existing literature on market efficiency. The cash dividend announcements have shown evidence for market efficiency, and results are contrary to Gupta et al. (2012), but the results are similar to Mishra (2005). Bonus issue announcements also have shown evidence for a semi-strong form of efficiency, test results identical to Dhar and Chhaochharia (2008), Kumar and Mittal (2015). Stock split announcements have not shown market efficiency, and the effect is similar to the study of Lakshmi and Roy (2012) and contrary to Chavali and Zahid (2011). Our results also support the premise that the emerging countries depict evidence of market efficiency (Bechev, 2003). Finally, we conclude that market efficiency results differ based on corporate announcements and market capitalization

Keywords: Capital Markets, Corporate Announcements, Event Study Methodology, Market Efficiency, Semi-Strong Form of Efficiency, & S&P BSE 500 Index.

JEL Classification: G32, G35

Suggested Citation

Marisetty, Nagendra and Madasu, Pardhasaradhi, Corporate Announcements and Market Efficiency: A Case on Indian Capital Market (July 12, 2021). International Journal of Business and Management; Vol. 16, No. 8; 2021, Available at SSRN: https://ssrn.com/abstract=3893377

Nagendra Marisetty (Contact Author)

REVA Business School (RBS), REVA University ( email )

Bangalore
India

Pardhasaradhi Madasu

Siva Sivani Institute of Management (SSIM) ( email )

Secunderabad
Telangana
India
07799207014 (Phone)
500067 (Fax)

HOME PAGE: http://https://ssim.ac.in/

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