• P-ISSN 0974-6846 E-ISSN 0974-5645

Indian Journal of Science and Technology


Indian Journal of Science and Technology

Year: 2016, Volume: 9, Issue: 15, Pages: 1-4

Original Article

Empirical Study of S&P BSE 100 Index on the Role of Dividend and Earnings Announcements: A Signalling Effect


Background/Objectives: The study focusses on the presence of signalling effect on the stock prices when the dividend announcements are made for a select group of companies. Methods/Statistical analysis: The event study methodology used in this case, studies the share price behaviour alongside the dividend announcement date. This methodology tries to determine if dividend announcements correspond with a change in the stock price of the company. For this purpose, it checks the abnormal returns on the stock are calculated as the difference between Expected returns and the actual returns on the stock price. The data under consideration is of S&P BSE 100 companies for the time period 2007-2014. Findings: This study shows that signalling theory works to some extent in case of dividend announcements. Positive dividend announcements are seen to have a positive effect on the share prices and also make the returns more volatile. At the same time negative dividend announcements are seen to have negative impact on the stock returns but not to the same extent. Constant dividend announcements have a positive effect on the stock returns. This validates the existence of signalling effect theory regarding the dividend and earning announcement in Indian markets. Application/Improvements: The existence of signalling effect can be further explored through analysing effects of earnings guidance news on the stock prices.

Keywords: Earnings Announcement, Dividend Announcement, Signalling Theory, JEL: G02, G10, G14


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