Impacts of Dividend Announcement on Stock Return

AbstractAccording to the dividend signalling theory, a company decides to announce its dividend payout policy to signal the market that the firm is now processing future prospects, which will result in changing its stock prices. This study focuses on the impact of dividend announcement of the 60 Thai companies in financial industry listed in the Stock Exchange of Thailand (SET) during the period 2005-2010. The study employs event study methodology in examining the effect of dividend announcement on the stock price surrounding forty days of announcement. In addition, the reaction of stock prices to the dividend announcement is also determined. Research result indicates that the stock prices move upward significantly after dividend announcements. Abnormal return (AR) and cumulative abnormal return (CAR) from the market model are statistically significantly revealed. The results confirm dividend signalling theory as the dividend announcements have significant impact on share prices