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Impacts of Dividend Announcement on Stock Return

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

According to the dividend signalling theory, a company decides to announce its dividend payout policy to signal the market that the firm is now processing future prospects, which will result in changing its stock prices. This study focuses on the impact of dividend announcement of the 60 Thai companies in financial industry listed in the Stock Exchange of Thailand (SET) during the period 2005-2010. The study employs event study methodology in examining the effect of dividend announcement on the stock price surrounding forty days of announcement. In addition, the reaction of stock prices to the dividend announcement is also determined. Research result indicates that the stock prices move upward significantly after dividend announcements. Abnormal return (AR) and cumulative abnormal return (CAR) from the market model are statistically significantly revealed. The results confirm dividend signalling theory as the dividend announcements have significant impact on share prices.

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1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1970EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK*1985Using daily stock returns 1997Event Studies in Economics and Finance 1985Dividend Policy under Asymmetric Information 1956DISTRIBUTION OF INCOMES OF CORPORATIONS AMONG DIVIDENDS, RETAINED EARNINGS AND TAXES 1984Two Agency-Cost Explanations of Dividends 2011Wiley encyclopedia of operations research and management science

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