Abstract:
Companies sell shares to investors to raise capital for business financing and
expansion. Investors purchase shares with several goals including risk
management (diversification), capital growth, dividends, and tax advantages.
Hence, the dividend policy of a firm has been given considerable interest in
the field of finance. The company’s dividend announcements as well as share
prices are considered as the most crucial factors that can influence investors’
decision-making between buying and selling shares. This study examines
dividend announcements and their effect on the share prices of listed
companies on the Colombo Stock Exchange from 2018 through 2022. For
this study, twenty randomly chosen CSE-listed companies' final dividend
announcements data and share prices were retrieved. The sample consisted
of companies in ten randomly chosen industrial sectors. The standard event
study methodology is used to examine the share prices response to dividend
announcements for the event period of thirty-one days, fifteen days before
the announcement date, fifteen days after the announcement date, and the
announcement date. The data was analyzed using both event study methods
and regression analysis methods (o calculate the abnormal return, excess
return, cumulative average abnormal return, and t-values surrounding the
dividend announcements day. The increase in share prices around the event
date is indicated by the positive abnormal return, which suggests that there
has been a considerable effect on share prices. The results of this study indicate that dividend announcements significantly affect share prices on the listed companies in the Colombo Stock Exchange. The study’s findings also
Jend credence to a semi strong form of efficient market hypothesis, according
1o which share prices reflect all publicly available information and investors
view dividend announcements as positive developments. Hence, the study
concludes that corporate dividend announcements respond to investor
choices and help establish share prices.
