The Transient Effect of Dividend Announcements on Stock Prices: A Short-Term Market Reaction Study of Indian Stock Market

Abstract India's burgeoning stock market has attracted global investors and companies, surpassing the Hong Kong equity market in 2024. This study seeks to examine how dividend announcements affect the stock prices of companies that are listed on the National Stock Exchange (NSE). Employing event study method, the research seeks to understand the implications of these announcements. The companies selected for analysis represent diverse sectors, market capitalizations, and performance levels. Specifically, this paper focuses on analyzing the cash dividend declarations of NIFTY 50 index stocks in the year 2023. A total of 87 companies were examined, encompassing large, medium, and small capitalization firms. Abnormal returns on the dividend announcement day were calculated using event methodology market model. Furthermore, the analysis categorizes companies based on their market capitalization size and the percentage of dividend declared. The findings indicate that the influence of dividend announcements on stock prices is perceptible solely on the event day. However, subsequent to the announcement, there is no strong correlation between the dividend announcement date and stock prices, as measured by market capitalization. The analyses also revealed that average abnormal returns vary significantly across stocks with different levels of dividend declaration. JEL: G12: Asset Pricing; Trading Volume; Bond Interest Rates G15: International Financial Markets G23: Non-bank Financial Institutions; Financial Instruments; Institutional Investors G14: Information and Market Efficiency; Event Studies G35: Payout Policy