Stock price reactions to stock dividend announcements

A case from a sluggish economic period

Aditya R. Khanal, Ashok Mishra

Research output: Contribution to journalArticle

4 Citations (Scopus)

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, 30 days 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.

Original languageEnglish (US)
Pages (from-to)338-345
Number of pages8
JournalNorth American Journal of Economics and Finance
Volume42
DOIs
StatePublished - Nov 1 2017
Externally publishedYes

Fingerprint

Announcement
Stock prices
Economics
Dividend announcements
Stock price reaction
Stock dividends
Confidence
Abnormal returns
Economic growth
Investors
Event study methodology
Great Recession
Financial crisis
Second World War

Keywords

  • Abnormal returns
  • Event study
  • Firm valuation
  • Stock market
  • Stock prices

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Stock price reactions to stock dividend announcements : A case from a sluggish economic period. / Khanal, Aditya R.; Mishra, Ashok.

In: North American Journal of Economics and Finance, Vol. 42, 01.11.2017, p. 338-345.

Research output: Contribution to journalArticle

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