Dividend Announcement Effect on Stock Return: An Event Study on Shanghai Stock Exchange

Abstract

In this paper, we have analyzed the effect of dividend announcement on stock price in Shanghai Stock Exchange. We have selected the announcement dates made by the stocks listed in SSE 180 index during the period from January 2005 and December 2009. We have found that on the day of dividend increase announcement, stock prices increase and investors gain abnormal returns. However, as for the effect of dividend decrease on the announcement day, market does not experience any negative abnormal returns implying that investors in Shanghai Stock Exchange do not regard dividend decrease as unfavorable information. Moreover, significantly large dividend increase announcement has much higher effect on the value of abnormal returns implying that size of the dividend increase is an important consideration to the investors.