Abstract:
This research paper aimed to examine the impact of cash dividend behaviour
on
stock prices, and investigate
whether the Colombo Stock Exchange is semi strong
form efficient. To achieve the objectives hypothesis were developed for testing. The
sample included cash dividend announcements from 36 companies over a period of
eight years from
1995 to 2002.
The study has a sample
size of only
50
announcements
dates for this type of dividend announcement.
To investigate
the
stock market response
to cash dividend announcement
the standard event
study
methodology
is used. In this study an estimation of 100 days an event window of 21
days are used.
The analysis showed that, the Colombo Stock Exchange is not efficient in the semi
strong form sense. The study has found that the sudden changes
in
dividend
behaviour have higher significant impact on stock price than the constant level of
dividend
behaviour.
Since the results of this studv indicate
that the CSE is
informationally
inefficient
so it has important
implications
for the
investors,
management
of companies and the stock market regulatory agencies. The investors
could make use of the delayed reaction of cash dividend announcements
information
to make decisions with regard to changes (to buy or sell) they have to make their
portfolio
in order to make profits or avoid potential
losses. The Securities
and
Exchange Commission
of Sri Lanka could increase its monitoring activities on the
stock market to ensure that listed companies disseminate
important information
such
as cash dividend
timely and regularly.
This kind of research can motivate
the
development
of share market activities through an effort of finding ways and means
to earn better return by the investors of the Colombo Stock Market.
