Abstract
This study analyses the difference in stock market reactions to dividend announcement during the pandemic. The thirty constituent stocks of Sensex, the index of Bombay Stock Exchange (BSE), is used for analysis. This allows cross-industry comparison of the market reaction. The study examines stock market reactions covering 44 days around the dividend announcement dates. The primary objective of this study is to understand whether the price adjustment linked to the dividend announcement news during the pandemic was different from the earlier years. This empirical study employs the conventional event study methodology using abnormal returns (ARs) to examine the stock market reaction to dividend announcement. The market reaction to dividend announcement was increasingly positive during the pandemic, compared to previous years. The statistical pooled t-tests showed there was a significant relationship between the pandemic and ARs. The findings also indicate that the difference in the market reaction to dividend announcement was more prominent in services stocks than that in manufacturing. Further, the results also verify the weak-form of efficiency of Indian stock exchange.
Highlights
COVID-19 and the subsequent lockdowns had an unprecedented impact on economies across the world
H5: Dividend announcement of manufacturing stocks had no significant impact on its Cumulative Abnormal Return (CAR) during the pandemic
Caused a non-zero cumulative abnormal return, that is, the market was not able to correct the new information regarding dividend announcement. This led to a non-zero CAR surrounding the dividend announcement
Summary
COVID-19 and the subsequent lockdowns had an unprecedented impact on economies across the world. The magnitude of financial market crash and the reactions of investors were different across markets In this context, this study attempts to compare the investor reaction to dividend announcement on the stock returns during the pandemic, compared to preceding years. Theories suggest that stock prices should rise when a company is about to announce dividend and decline once the amount is disbursed (Baker et al, 2020). This rule is rarely followed due to external factors and investor expectations (Hodrick, 1992)
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