Impact of dividend announcement on share price in Colombo stock exchange

Abstract

This study investigates the impact of Dividend Announcement on Share prices of listedcompanies in Colombo Stock Exchange for the period of 20013 to 2018' The finaldividend announcement data and share prices were extracted from sixteen listedcompanies in CSE for this study and the sample belong to seven industrial sectors. Thestandard event study methodology is used to examine the stock market response todividend announcements for the event period of eleven days which is five days prior toannouncement date, five days after the announcement date and the announcement date'Both event study method and regression analysis methods were applied to analysiscollected data in relation to computing the abnormal return, excess return, cumulativeaverage abnormal retum and t values surrounding the dividend announcement day. Thepositive abnormal retum indicates that there is significant impact on share prices thatmeans the share prices have been increased surrounding the event date. The resultsindicate that the corporate dividend announcements are responded to investor decisionsand to create a market value. The corporate literature for dividend announcements onmarket response provide mix results as some of the prior literature suggests that thereis direct relationship between firm's dividend policy and market value and some studiessuggest that there is no relationship between dividend announcements and marketvalue. This study is examining those contradicting theories and the findings shows thatthere is significant impact of dividend annol.rncements on share prices in ColomboStock Exchange.Also, the results of this study are support to semi strong form of efficient markethypothesis which is the share prices reflects all public information and the investorsconsider dividend announcement as favourable factor to them.