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The IUP Journal of Accounting Research and Audit Practices:

A Systematic Review of Dividend Announcement and Its Impact on the Stock Prices: Evidence from Indian Service Providing Companies

Article Details

Pub. Date	: July, 2021
Product Name	: The IUP Journal of Accounting Research and Audit Practices
Product Type	: Article
Product Code	: IJARAP70321
Author Name	: Pournima Dhume and Huma Makandar
Availability	: YES
Subject/Domain	: Finance
Download Format	: PDF Format
No. of Pages	: 17

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Abstract

Dividend policy contributes significantly to the company's performance as well as its survival and growth. Formulation of such policy is a challenging task to the firm as it conveys positive signal about the company to its investors. In India, the impact of dividend announcement has been examined extensively, but its impact on the service sector companies is relatively unobserved. The purpose of this study is to conduct a detailed and systematic review of dividend announcement and analyze the effect of dividend announcement on stock prices of the service providing companies listed on National Stock Exchange of India. The study employs the event study methodology with an event window of 31 days. The study is carried out for a period ranging from January 1, 2018 to December 31, 2019. The findings of the study revealed that the stock prices react towards the dividend announcement event of the companies and thus there is a significant impact of dividend announcement on the stock prices during the event window which led to generation of abnormal returns.

Description

Dividend decisions are very crucial for any company as it influences other important financial and investment decisions of the company. The company has to judicially determine its status and the expectations of shareholders before arriving at dividend decisions. Dividend policy contributes significantly to the company's performance as well as its survival and growth, formulation of such policy is a challenging task to the firm as it conveys positive signal about the company to its investors. Lintner (1956) suggested a dividend policy which focused on two core notions: first a company's target payout ratio; and second the speed at which current dividends adjust to the target, followed by Miller and Modigliani (1961). Since then, there are a number of studies conducted worldwide on dividend policy