Impact of Dividend Announcements of Banks on Stock Returns and the Determinants of Dividend Policy

Authors

  •   Poornima B. G. Assistant Professor, Department of Commerce, Goa University, Taleigao Plateau, Goa - 403 206
  •   Vassanti Morudkar Student - M.Com, Department of Commerce, Goa University, Taleigao Plateau, Goa - 403 206
  •   Y. V. Reddy Professor of Commerce and Registrar, Goa University, Taleigao Plateau, Goa - 403 206

DOI:

https://doi.org/10.17010//ijf/2019/v13i5/144182

Keywords:

Dividend

, Stock Markets, Event Study, Leverage, Risk.

JEL Classification

, G14, G21, G35

Paper Submission Date

, June 16, 2018, Paper sent back for Revision, April 14, 2019, Paper Acceptance Date, April 22, 2019

Abstract

The study attempted to examine and compare the impact of dividend announcements on the stock returns of the public and private sector banking companies of the Indian share market and also examined the factors that determined the dividend policy of the banking companies using event study and panel data methodology, respectively. A sample of 38 companies listed on the BSE Bankex index of Bombay Stock Exchange (BSE), which made 172 dividend announcements for the period of 2011-2015, were considered. The study found that dividend announcements of public sector banks had a negative impact on stock returns, while the dividend announcements of private sector banks had a positive impact on stock returns. The examination of determinants of dividend policy revealed that in case of public sector banks, only size had a significant effect on the current year's dividend payout ratio, while in case of private sector banks, leverage, profitability, risk, and last year's dividend had a significant impact on the current year's dividend payout ratio.

Downloads

Download data is not yet available.

Downloads

Published

2019-05-31

How to Cite

B. G., P., Morudkar, V., & Reddy, Y. V. (2019). Impact of Dividend Announcements of Banks on Stock Returns and the Determinants of Dividend Policy. Indian Journal of Finance, 13(5), 7–24. https://doi.org/10.17010//ijf/2019/v13i5/144182

Issue

Volume 13, Issue 5, May 2019

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

References

Acharya, P. N., Biswasroy, P. K., & Mahapatra, R. P. (2012). Determinants of corporate dividend policy: A study of sensex included companies. Indian Journal of Finance, 6 (4), 35-43.

Ali, M. B., & Chowdhury, T. A. (2010). Effect of dividend on stock price in emerging stock market : A study on the listed private commercial banks in DSE. International Journal of Economics and Finance, 2 (4) 52-64.

Dharmarathne, D. G. (2013). Stock price reaction to dividend announcements and information efficiency in Sri Lankan share market. International Journal of Research in Social Sciences, 3 (2), 100-111.

Iqbal, N., Ahmad, N., Ullah, H., & Abbas, A. (2014). Effect of dividend announcement on stock prices in banking industry of Pakistan. International Letters of Social and Humanistic Sciences, 35, 15-25. Retrieved from https://www.scipress.com/ILSHS.35.15

Jais, M., Karim, B. A., Funaoka, K., & Abidin, A. Z. (2009, 12 26). Dividend announcements and stock market reaction (MPRA Paper No. 19779). Retrieved from http://mpra.ub.uni-muenchen.de/19779/

Jose, T., & George, T. (2015). Impact of dividend announcements on stock prices with special reference to banking companies in India. TIJ’s Research Journal of Commerce & Behavioural Science, 4 (8), 1-8.

Kandpal, D. V., & Kavidayal, P. P. (2015). A study of dividend policy and its effect on market value of shares of selected banks in India. IOSR Journal of Business and Management (IOSR-JBM), 17 (1.Ver. I), 41- 44. DOI: https://dx.doi.org/10.9790/487X-17114144

Kashif, I., Muhammad, U., & Nishat, M. (2013). Banks dividend policy: Evidence from Pakistan. Economic Modelling, 32, 88-90.

Maladjian, C., & El Khoury, R. (2014). Determinants of the dividend policy: An empirical study on the Lebanese listed banks. International Journal of Economics and Finance, 6 (4), 240-256. DOI : http://dx.doi.org/10.5539/ijef.v6n4p240

Masum, A. (2014). Dividend policy and its impact on stock price – A study on commercial banks listed in Dhaka Stock Exchange. Retrieved from https://ssrn.com/abstract=2724964

Mehndiratta, N., & Gupta, S. (2010). Impact of dividend announcement on stock prices. International Journal of Information Technology and Knowledge Management, 2 (2), 405-410.

Mehta, A. (2012). An empirical analysis of determinants of dividend policy-Evidence from the UAE companies. Global Review of Accounting and Finance, 3 (1), 18-31.

Movalia, N., & Vekariya, P. (2014). A study on determinant of dividend policy and its impact on dividend of listed company under S&P BSE Sensex. Journal of Business Management and Social Science Research, 3 (12), 70-72.

Mukora, M. Y. W. (2014). The effect of dividend announcement on stock returns of firms listed at the Nairobi Securities Exchange (Unpublished MBA Project). University of Nairobi.

Pandey, I. M. (2010). Financial management. New Delhi : Vikas Publishing House Pvt. Ltd.

Rizvi, S., & Khare, S. (2011). Determinants of dividend payout ratios-A study of the Indian banking sector. Indian Journal of Finance, 5 (2), 24-31.

Sudhahar, M. (2010). Determinants of dividend policy in selected Indian industries: An empirical analysis. Indian Journal of Finance, 4 (12), 29-39.

Zameer, H., Rasool, S., Iqbal, S., & Arshad, U. (2013). Determinants of dividend policy : A case of banking sector in Pakistan. Middle-East Journal of Scientific Research, 18 (3), 410-424. DOI : 10.5829/idosi.mejsr.2013.18.3.12200