How long does stock price react to dividend payment announcement?

Abstract

This study investigates the number of average day that stock price reacts to cash dividend announcements for the period 1999–2011 employing data from the SETSMART database. First in this paper, a thorough investigation is done with the help of ‘event study methodology’ to analyze the average number of day that reach the average of maximum cumulative abnormal return (CAR) and average of minimum cumulative abnormal return (CAR) after the cash dividend announcement. Second, examines the trend of rate of return of each stock impact to the number of day to reach the average maximum CAR and average minimum CAR of each cash dividend announcement. Third, examines the industry effect to the number of day to reach the average maximum CAR and average minimum CAR of each cash dividend announcement. Forth, examines that cash dividend announcement might have an impact to the investment behavior of each investor types. The study finds that the average number of day to reach the average of maximum or minimum CAR faster is the good event new from the dividend change. It is expected that the study will not only help in developing investors’ awareness regarding stock price sensitivity towards dividend declaration, but also help to design their investment decision to protect their interest. However, only cash dividend announcement news is the limitation for study as well. So more news information will be helped to get more efficiency analyze for investment planning.

KEY WORDS: Dividend announcement / dividend change / cumulative abnormal return / stock price / SET