Price Behaviour Around Dividend Announcements in the Indian Equity Market in the Existence of Corporate Dividend Tax

Abstract

This article empirically examines the price behaviour around cash dividend announcements of the firms listed on the National Stock Exchange of India Ltd (NSE) in order to understand whether dividend announcements really influence stock returns in the market and carry meaningful information to the investors in the existence of corporate dividend tax. The article uses standard ‘event study’ methodology based on market model on a sample of 210 dividend announcements. Subsample analysis is employed for further analysis of firms of different categories. The study finds that cash dividend announcements do not necessarily generate abnormal stock returns in an emerging market, such as India. The whole sample is further divided into various subsamples on the basis of firm size and the size of payout ratio. The study finds that large payout firms experience greater stock returns compared to the smaller payout firms just after the dividend announcements. However, stock returns following dividend announcements do not vary across firm size. This article provides evidence to the managers about the non-linkage between cash dividend announcements and stock returns in an emerging market like India. This finding is contrary to the findings of many other studies that are based on the data of the developed economies.

Equity Values and Prediction of Earnings with Disaggregation of Earnings in India

“…Compared to US market (mature market), Indian capital markets (emerging market), namely, BSE and NSE are small, inefficient and subject to various institutional factors. Sharma and Kennedy (1977), Gupta (1990), Lazar (2009), Srivastava, Bhatia and Gupta (2015), Chatterjee and Dutta (2017) examined and explained the applicability of weak form of efficiency in Indian capital market and found the supporting evidence. Hence, we have adopted Barth et al's (1999Barth et al's ( , 2005 prediction models, given in the form of different LIM structures and re-investigate the effects of disaggregated earnings in the Indian context.…”

Dividend reduction and stock price reaction in Indian market: is there a role of share repurchase?

“…Taneem and Yuce (2011) investigate the impact on dividend change announcements of 82 Indian firms and observe a favorable investor reaction for dividend increase compared to dividend decrease. Other significant studies which examine the stock price reaction to dividends announcements of Indian firms include Chander et al (2007); Lukose and Rao(2010); Sharma(2011); Kumar(2013); Sharma and Pandey(2014); Anwar et al (2017); and Chatterjee and Dutta(2017).…”

“…Such empirical research is scarce in an emerging economy context, especially in India. Most studies on Indian firms have explored the effect of cash dividend announcements on stock returns (Chander et al , 2007; Anwar et al , 2017; Chatterjee and Dutta, 2017). However, they do not explicitly focus on divided changes (increase/decrease).…”

Impact of Dividend Tax Change on the Payout Policy of Indian Companies

“…Research on dividends in India has mainly focused on the determinants of corporate dividend (Labhane & Mahkud, 2016) and on the effect of dividend announcements on stock prices (Chatterjee & Dutta, 2017;Sarvanakumar, 2011). To the best of our knowledge, this is the first article in India that attempts to examine the impact of tax changes on corporate dividend policy in India.…”