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Stock price reactions to stock dividend announcements: A case from a sluggish economic period

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  • Khanal, Aditya R.
  • Mishra, Ashok K.

Abstract

The 2007 financial crisis and the Great Recession that followed resulted in a loss of confidence among investors, and regaining their full trust and confidence has been a challenge for companies. Although economic growth has been volatile throughout the postwar World War II period, recent growth (2008–2015) has been remarkably weaker than in the previous low-growth period (1974–1995). The 2006–2015 period is often characterized by sluggish economic growth. This study investigates stock price reactions to stock dividend announcements, 30days before and after the announcement dates, of publicly traded companies in the period 2006–2012. We use an event study methodology for 460 events and daily stock price data for companies in the CRSP historical data set. The study shows a significant reaction in stock prices around the event date. On average, stock prices reacted positively to stock dividend announcements. However, compared to previous findings of abnormal returns (5.9%), results from this study show small abnormal returns (about 1.81%) attributable to stock dividend announcements that are cumulative of the announcement day and up to 3-day post-announcement days. Our estimates are even lower than the 2.01% stock price reaction obtained in the 1987–1996 period.

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  • Khanal, Aditya R. & Mishra, Ashok K., 2017. "Stock price reactions to stock dividend announcements: A case from a sluggish economic period," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 338-345.
    • Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:338-345
    DOI: 10.1016/j.najef.2017.08.002
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    8. Robiyanto Robiyanto & Fanny Yunitaria, 2022. "Dividend announcement effect analysis before and during the COVID-19 pandemic in the Indonesia Stock Exchange," SN Business & Economics, Springer, vol. 2(2), pages 1-20, February.
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    More about this item

    Keywords

    Stock market; Stock prices; Event study; Firm valuation; Abnormal returns;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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