Impact of Dividend Announcements on Stock Returns- An Empirical Study of Indian Companies

Abstract

The purpose of this study is to shed light on the impact of dividend payout policies on stock performance of 80 large-cap businesses listed on the Bombay Stock Exchange (BSE) from 2004 to 2020. The study used t-test and Event Study Methodology with a 25-days event window period, and the results revealed that the dividend distribution policies adopted by the companies had a significant impact on the sample companies' stock returns. In the vast majority of situations, abnormal stock gains began to decline sharply on day ‘⁺1'. The results showed that stock trading was at its peak on the day of the public announcement of dividend payments. The study suggests that whatever dividend payout philosophy the sample companies adopt, they should be meticulous in their considerations of an efficient approach in order to maximize their shareholders' wealth while also meeting the needs for additional investments in profitable projects.