Market Reaction to Dividend Announcements Before and During COVID-19 - Evidence from Banking Sector

Abstract

The present study documented the behaviour of stock of the Indian banking sector around the announcements of dividends before and during the global health crisis of 2019. The study considered all the banks in the Indian banking sector that have announced the dividend from January 2015 to December 2021 and conducted the analysis using event study methodology with Multi-Index Model (MIM). The study found that during the pre-crisis period, the stock of the PSU banks were more sensitive towards the announcements when dividends were decreased compared to the announcements when it was increased. While, stock of private banks was significantly impacted by both positive and negative dividend announcements, however, the impact of negative dividend announcements was severe and more prolonged than that of positive dividend announcements. Further, during the COVID 19 Pandemic, it is witnessed that information relating to dividend announcement has positively affected the behaviour of the banking sector stock.