Information Content Of Dividend Announcements: An Investigation Of The Indian Stock Market

Abstract

According to the dividend information content hypothesis, dividend changes trigger stock returns because they reflect changes in management’s assessment of a firm’s future profitability. This hypothesis has motivated a considerable amount of theoretical and empirical research. The general procedure used in prior research begins with classifying the dividend change announcement into either favorable or unfavorable. Dividend policy of companies operating in the emerging markets is very different from the widely accepted dividend policies operating in the developed countries. The purpose of this research is to examine the information content of dividend announcements and price movements in the emerging Indian stock market. The paper investigates the information content and market reaction to dividend announcements using data from the developing Indian market. We focus on the information content of dividend policies through the share price reaction of 82 companies in India that are listed in the Bombay Stock exchange.