Dividend Announcement and Share Prices: A Nepalese Evidence

Abstract

This paper examines the abnormal returns of dividend announcements in the Nepalese stock market using the market model of event methodology after adjustment of existing thin-trading problem. To examine the abnormal returns of dividend announcements, 139 dividend announcement samples were partitioned into dividend divide increase(good news. divided crease (bad-news), and no dividend-change (no-news) sub-samples. The positive abnormal returns were found much higher on the dividend announcement day in the dividend- initiation and dividend-increase cases. The dividend-decrease sub-sample shows the highest negative abnormal returns on the dividend announcement day. The no dividend-change announcements suh-sample shows that the entire 21-day event window has insignificant abnormal returns. The percentage of dividend changes is only the influential factor to determine abnormal returns during the dividend announcement day, whereas the variables such as dividend yield, size of the firm, market-to-book ratio, market conditions and time specification have no explanatory power on the share prices around the dividend announcement day. The dividend announcements have a signaling effect in the Nepalese stock market. The study also found that the Nepalese stock market supported the semi- strong form of market efficiency.