How Does Stock Market React to Dividend Announcement? An Empirical Evidence from Tanzania Listed Firms

Abstract

This paper aimed at examining the reaction of corporate stock return on dividend announcement for listed firms in Dar Es Salaam Stock Exchange (DSE) between 2010 and 2019. The study employed the event study methodology to assess the impact of the information on the stock return. The results clearly show that the effect of dividend announcement on the stock return is positive around the announcement date, and that the stock price moves up as long as the announcement date approaches and then starts decreasing from this date onwards. This immediately confirms the consequence of dividend announcement, that the effect of dividend announcements is consistent with the informational content of the dividend hypothesis as well as with dividend signaling models. Clearly, the results of this study support the dividend relevance theory in which the dividend policy affects the firm value. Particularly, the findings would enhance current understandings of the dividend policy impact on the firm value, and this may allow financial managers to be able to determine an optimal dividend policy which improves the performance of the firms. Furthermore, the study encourages investors to benefit from dividend announcement as a guide towards buying and selling stocks to avoid unnecessary trading losses.