Dividend Announcement Puzzle and its Impact on Return to the Banking Sector Investors of DSE

Abstract

This study paper examines the effect of dividend declaration on banking sector stock return in DSE. A sample of 10 listed banking companies has been examined for the time period of 2008, 2009 and 2010. Our findings show that there are some impacts of dividend declaration on the stock return. The Average Abnormal Return (AAR) increases on the declaration date and then decreases sharply. The Mean Cumulative Abnormal Return (MCAR) shows mixed behavior prior to the announcement day, a slight upward on the announcement day and then shows decreasing trend. Regression model reveals that there is very strong impact of announcement on the stock return, and hence it is sensitive to price movements. The models clearly showed that the impact is highest “One Day After” the date of dividend declaration in comparison to On the Day” and “One Day Before” the date of declaration.