Abstract:
Stock price reaction to the dividend announcement is a topic that discuses in number
of empirical research in the developed and emerging stock markets over the last
several decades. This study attempts to examine stock price reaction to dividend
announcements in Sri Lankan Share Market with a sample of 20 major companies
from those listed on the Colombo Stock Exchange (CSE), which have made a
dividend announcement for the year 2014/2015. This study employs observation as
methodology. More specifically, it employs the market returns surrounding dividend
announcements. Findings show that there is a considerable informational content of
dividend announcements in Colombo Stock Exchange. The investors consider
dividend announcements as favorable news. The stock price reacts positively to
dividend announcements in Sri Lankan Capital Market. More specifically, dividend
increase announcements support the information content of dividend hypothesis.
Moreover, dividend decrease announcements and dividend no change
announcements against with the information content of dividend hypothesis. In
addition, the results in this study has provided a light on the pathway to discovering
impact of dividend announcement to a share price volatility. I hope this research will
be important to all those takes interest in the share market. Especially, it is more
important to the investors, managers of the companies and stock exchange
regulatory agencies in their decision-making.
