1

1.1 Introduction
Dividends are payments made by a corporation to its shareholder members. It is the
portion of corporate profits paid out to stockholders. When a corporation earns a profit or
surplus, that money can be put to two uses: it can either be re-invested in the business (called
retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a
portion of their earnings and pay the remainder as a dividend.
For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore,
a shareholder receives a dividend in proportion to their shareholding. For the joint stock
company, paying dividends is not an expense; rather, it is the division of an asset among
shareholders. Public companies usually pay dividends on a fixed schedule, but may declare a
dividend at any time, sometimes called a special dividend to distinguish it from a regular one.
Dividends are usually settled on a cash basis, store credits (common among retail
consumers' cooperatives) and shares in the company (either newly-created shares or existing
shares bought in the market.) Further, many public companies offer dividend reinvestment plans,
which automatically use the cash dividend to purchase additional shares for the shareholder.
Several factors must be considered when establishing a firms dividend policy. These include
The liquidity position of the firm just because a firm has income doesnt mean that
it has any cash to pay dividends.
Need to repay debt oftentimes there are negative covenants that restrict the
dividends that can be paid as long as the debt is outstanding.
The rate of asset expansion the greater the rate of expansion of the firm, the greater
the need to retain earnings to finance the expansion.
Control of the firm if dividends are paid out today, equity may have to be sold in
the future causing a dilution of ownership.
Legal Considerations:
Technically, it is illegal to pay a dividend except out of retained earnings. This is to
prevent firms from liquidating themselves out from underneath the creditors.

Is it in the best interests of shareholders to pay out earnings as dividends or to reinvest

them in the company? The answer to this depends upon the investment opportunities that the
firm has.
There are three fundamental policies to paying cash dividends that firms employ:
Pay a constant dollar amount each year regardless of earnings per share. This is what most
firms do.
Use a constant payout ratio (for example, 50% of EPS)
Pay a low, fixed dividend amount plus dividend extras or special dividends. This allows
the company to avoid having to cut dividends since the basic dividend is low, but also avoids
the improper accumulation of funds during good years.
A cut in dividends generally hurts a stocks price because it sends a signal to stockholders
that managements outlook for the future is that the company cannot continue to pay the
dividend. Most companies therefore start off with a low dividend and only increase it when they
feel that the earnings prospects have improved sufficiently to allow for maintaining a higher
dividend. Many companies will even borrow money in a bad year in order to avoid cutting the
dividends.
The market price is influenced by dividends through what is called the clientele effect.
That is, some investors want dividends (such as retirees and pension funds) while others do not
want dividends (wealthy individuals) but would prefer capital gains (which are taxed at a lower
rate and deferred).

1.2 Forms of Payment

Cash dividends (most common) are those paid out in the form of a cheque. Such dividends are a
form of investment income and are usually taxable to the recipient in the year they are paid. This
is the most common method of sharing corporate profits with the shareholders of the company.
For each share owned, a declared amount of money is distributed. Thus, if a person owns 100
shares and the cash dividend is $0.50 per share, the person will be issued a cheque for $50.
Stock or scrip dividends are those paid out in form of additional stock shares of the issuing
corporation, or other corporation (such as its subsidiary corporation). They are usually issued in
proportion to shares owned (for example, for every 100 shares of stock owned, 5% stock
dividend will yield 5 extra shares).
Property dividends or dividends in specieare those paid out in the form of assets from the
issuing corporation or another corporation, such as a subsidiary corporation. They are relatively
rare and most frequently are securities of other companies owned by the issuer, however they can
take other forms, such as products and services.
Other dividends can be used in structured finance. Financial assets with a known market value
can be distributed as dividends; warrants are sometimes distributed in this way. For large
companies with subsidiaries, dividends can take the form of shares in a subsidiary company. A
common technique for "spinning off" a company from its parent is to distribute shares in the new
company to the old company's shareholders. The new shares can then be traded independently.

1.3 Dates
Dividends must be "declared" (approved) by a companys Board of Directors each time they are
paid. For public companies, there are four important dates to remember regarding dividends.
These are discussed in detail with examples at the Securities and Exchange Commission site
The declaration date is the day the Board of Directors announces its intention to pay a dividend.
On this day, a liability is created and the company records that liability on its books; it now owes
the money to the stockholders. On the declaration date, the Board will also announce a date of
record and a payment date.
The in-dividend date is the last day, which is one trading day before the ex-dividend date, where
the stock is said to be cum dividend In other words, existing holders of the stock and anyone who
buys it on this day will receive the dividend, whereas any holders selling the stock lose their right
to the dividend. After this date the stock becomes ex dividend.
The ex-dividend date is the day on which all shares bought and sold no longer come attached
with the right to be paid the most recently declared dividend. This is an important date for any
company that has many stockholders, including those that trade on exchanges, as it makes
reconciliation of who is to be paid the dividend easier. Existing holders of the stock will receive
the dividend even if they now sell the stock, whereas anyone who now buys the stock will not
receive the dividend. It is relatively common for a stock's price to decrease on the ex-dividend
date by an amount roughly equal to the dividend paid. This reflects the decrease in the company's
assets resulting from the declaration of the divGidend Whenever a company announces a
dividend pay-out, it also announces a "Book closure Date" which is a date on which the company
will ideally temporarily close its books for fresh transfers of stock. Read "Book Closure" for a
better understanding. Shareholders who properly registered their ownership on or before the date
of record, known as stockholders of record, will receive the dividend. Shareholders who are
not registered as of this date will not receive the dividend. Registration in most countries is
essentially automatic for shares purchased before the ex-dividend date. The payment date is the
day when the dividend checks will actually be mailed to the shareholders of a company or
credited to brokerage accounts.

1.4 Types of Dividend Policies

There are many distinct dividend policies, but most policies fall into categories.
(A) A stable dividend policy is characterized by the tendency to keep a stable dollar amount
of dividends per share from period to period.
Corporations tend to establish a predetermined target dividend payout ratio in which dividends
are increased only after management is convinced that future earnings can support the higher
dividend payment. Under this policy, dividend changes will normally lag behind earnings
changes. Firms are reluctant to lower their dividend payments, even in times of financial distress.
Most firms follow a relatively stable dividend policy for four reasons:
Many business executives believe that stable dividend policies lead to higher stock
prices. The empirical evidence on the relationship between dividend policy and stock
prices is inconclusive.
Investors may view constant or steadily increasing dividends as more certain than a
fluctuating cash dividend payment.
There is less chance to signal erroneous informational content with a stable dividend
policy. Thus, firms tend to avoid reducing the annual dividend because of the
information content that a dividend cut may Convey.
EXAMPLE: Americana Products, Inc. earned $4,000,000 last year and paid $1.40 per share in
dividends on 1,000,000 outstanding shares. Because of a temporary slump in the market, the firm
expects to earn $3,600,000 this year. If the Company maintains a stable dividend policy, it will
maintain a $1.40 dividend per share, despite the expected decline in earnings.
(B) A constant dividend payout ratio policy is one in which a firm pays out a constant
percentage of earnings as dividends.
This policy is easy to administer once the firm selects the initial payout ratio. A constant
dividend payout policy will cause dividends to be unstable and unpredictable, if earnings
fluctuate. Few firms follow a constant dividend payout policy because stock prices may be
adversely affected by highly volatile dividends.

1.5 FACTORS AFFECTING DIVIDEND POLICY

1. Stability of Earnings. The nature of business has an important bearing on the dividend policy.
Industrial units having stability of earnings may formulate a more consistent dividend policy
than those having an uneven flow of incomes because they can predict easily their savings and
earnings. Usually, enterprises dealing in necessities suffer less from oscillating earnings than
those dealing in luxuries or fancy goods.
2. Age of corporation. Age of the corporation counts much in deciding the dividend policy. A
newly established company may require much of its earnings for expansion and plant
improvement and may adopt a rigid dividend policy while, on the other hand, an older company
can

formulate

clear

cut

and

more

consistent

policy

regarding

dividend.

3. Liquidity of Funds. Availability of cash and sound financial position is also an important
factor in dividend decisions. A dividend represents a cash outflow, the greater the funds and the
liquidity of the firm the better the ability to pay dividend. The liquidity of a firm depends very
much on the investment and financial decisions of the firm which in turn determines the rate of
expansion and the manner of financing. If cash position is weak, stock dividend will be
distributed and if cash position is good, company can distribute the cash dividend.

4. Extent of share Distribution. Nature of ownership also affects the dividend decisions. A
closely held company is likely to get the assent of the shareholders for the suspension of
dividend or for following a conservative dividend policy. On the other hand, a company having a
good number of shareholders widely distributed and forming low or medium income group,
would face a great difficulty in securing such assent because they will emphasis to distribute
higher dividend.

5. Needs for Additional Capital. Companies. Retain a part of their profits for strengthening
their financial position. The income may be conserved for meeting the increased requirements of
working capital or of future expansion. Small companies usually find difficulties in raising
finance for their needs of increased working capital for expansion programmers. They having no

other alternative, use their ploughed back profits. Thus, such Companies distribute dividend at
low rates and retain a big part of profits.
6. Trade Cycles. Business cycles also exercise influence upon dividend Policy. Dividend policy
is adjusted according to the business oscillations. During the boom, prudent management creates
food reserves for contingencies which follow the inflationary period. Higher rates of dividend
can be used as a tool for marketing the securities in an otherwise depressed market. The financial
solvency can be proved and maintained by the companies in dull years if the adequate reserves
have been built up.
7. Government Policies. The earnings capacity of the enterprise is widely affected by the
change in fiscal, industrial, labour, control and other government policies. Sometimes
government restricts the distribution of dividend beyond a certain percentage in a particular
industry or in all spheres of business activity as was done in emergency. The dividend policy has
to be modified or formulated accordingly in those enterprises.
8. Taxation Policy. High taxation reduces the earnings of he companies and consequently the
rate of dividend is lowered down. Sometimes government levies dividend-tax of distribution of
dividend beyond a certain limit. It also affects the capital formation. N India, dividends beyond
10%

of

paid-up

capital

are

subject

to

dividend

tax

at

7.5

%.

9. Legal Requirements. In deciding on the dividend, the directors take the legal requirements
too into consideration. In order to protect the interests of creditors an outsiders, the companies
Act 1956 prescribes certain guidelines in respect of the distribution and payment of dividend.
Moreover, a company is required to provide for depreciation on its fixed and tangible assets
before declaring dividend on shares.

10. Past dividend Rates. While formulating the Dividend Policy, the directors must keep in
mind the dividend paid in past years. The current rate should be around the average past rat. If it
has been abnormally increased the shares will be subjected to speculation. In a new concern, the
company should consider the dividend policy of the rival organisation.

11. Ability to Borrow. Well established and large firms have better access to the capital market
than the new Companies and may borrow funds from the external sources if there arises any
need. Such Companies may have a better dividend pay-out ratio. Whereas smaller firms have to
depend on their internal sources and therefore they will have to built up good reserves by
reducing the dividend payout ratio for meeting any obligation requiring heavy funds.

12. Policy of Control. Policy of control is another determining factor is so far as dividends are
concerned. If the directors want to have control on company, they would not like to add new
shareholders and therefore, declare a dividend at low rate. Because by adding new shareholders
they fear dilution of control and diversion of policies and programmes of the existing
management. So they prefer to meet the needs through retained earing. If the directors do not
bother about the control of affairs they will follow a liberal dividend policy.

13. Repayments of Loan. A company having loan indebtedness are vowed to a high rate of
retention earnings, unless one other arrangements are made for the redemption of debt on
maturity. It will naturally lower down the rate of dividend. Sometimes, the lenders

put

restrictions on the dividend distribution still such time their loan is outstanding.
14. Time for Payment of Dividend. When should the dividend be paid is another consideration.
Payment of dividend means outflow of cash. It is, therefore, desirable to distribute dividend at a
time when is least needed by the company because there are peak times as well as lean periods of
expenditure. Wise management should plan the payment of dividend in such a manner that there
is no cash outflow at a time when the undertaking is already in need of urgent finances.

15. Regularity and stability in Dividend Payment. Dividends should be paid regularly because
each investor is interested in the regular payment of dividend. The management should, inspite
of regular payment of dividend, consider that the rate of dividend should be all the most constant.
For this purpose sometimes companies maintain dividend equalization Fund.

10

11

Research Problem:
Efficient Market Hypothesis states that it is impossible to beat the market because the stock
market efficiency causes the stock prices to incorporate and reflect all the new information in the
stock prices. We want to study whether the markets are efficient when the dividend policy is
announced by the corporate. There are certain issues which are to be focused upon.
To find out any relation between corporate dividend policy and market value of a
company.
To analyze the effect of corporate dividend decisions in terms of creating abnormality in
the price and volume of the company.
To check whether the markets are efficient when any news about dividend decisions of a
company is received.

12

Literature Review:
Modigliani and Miller (1961) have shown, investors may be indifferent about the
amount of dividend as it has no influence on the value of a firm. Any investor can create
a home made dividend if required, or can invest the proceeds of a dividend payment in
additional shares as and when a company makes dividend payment. Similarly, managers
may be indifferent as funds would be available or could be raised without any floatation
costs for all positive net present value projects.
Lintner (1956) analyzes as to how firms set dividends and concluded that firms have
four important concerns. Firstly, firms have long-run target dividend payout ratios. The
payout ratio is high in case of mature companies with stable earnings and low in case of
growth companies. Secondly, the dividends change follows shift in long-term sustainable
earnings.
Brealey (1992) poses the dividend policy decision as What is the effect of change in
cash dividends, given the firms capital-budgeting and borrowing decisions? In other
words, he looks at dividend policy in isolation and not as a by-product of other corporate
financial decisions.
Baker, Veit and Powell (2001) study the factors that have a bearing on dividend policy
of corporate firms traded on the Nasdaq. The study, based on a sample survey (1999)
response of 188 firms out of a total of 630 firms that paid dividends in each quarter of
calendar years 1996 and 1997, finds that the following four factors have a significant
impact on the dividend decision: pattern of past dividends, stability of earnings, and
the level of current and future expected earnings. The study also finds statistically
significant differences in the importance that managers attach to dividend policy in
different industries such as financial versus non-financial firms.
Fama and French (2001) analyzed the issue of lower dividends paid by corporate firms
over the period 1973-1999 and the factors responsible for the decline. In particular, they
analyzed whether the lower dividends were the effect of changing firm characteristics or
lower propensity to pay on the part of the firms. They observed that proportion of
companies paying dividend has dropped from a peak of 66.5% in 1978 to 20.8% in 1999.

13

Objectives of the Study:

To explore the insight of a corporate event named Dividend Policy which drags lot of
attention and results into may drastic changes in the market valuation of he firm.
To study the impact of dividend on the price and volume before and after such
dividend is announced.
To check whether abnormality exists in the price and volume of the share as the
dividend is announced.
To find out the room for leakage of any insider information about dividend policy of a
company
To check whether any insider information plays any part in abnormal trading effect and
abnormal price effect in a script.
To analyze the bearing of such abnormality (if it does exist) on the market
capitalization and volumes traded on the stock market a month before the
Announcement Date and a month after the ex-dividend date for all the scripts under the
study.
To measure the cumulative impact of corporate dividend policy and try to conceive a
general trend based on it.

Research Design:
Exploratory Research

Scope of the Study:

To do a relative analysis between BSE-500 index and share prices of selected
companies.
Limited to Top 30 companies according to market capitalization and which have
declared dividend in the year 2010.
Limited to BSE-500 companies only.

14

Sampling:
Sampling Technique : Judgmental sampling
Sampling Unit

: One company of BSE-500

Sampling Size

: 30 companies from BSE-500 index

Data Sources:
Secondary Data
Internet Sources
Business Journals
Research papers

Method of Analysis:
CAPM (Regression Model)

Limitation of the Survey:

The results of the analysis might differ if any model other than CAPM (Regression
Model) is used.
The study is limited to the top 30 companies from BSE-500 index, which have declared
dividend in the year 2010.
While studying the effect of corporate dividend policy on the market price of the script,
it is assumed that all the other factors affecting the market price are constant.
In this part, we will explain you how we have calculated the abnormal return using the excel
worksheet from the data that we got from the Prowess Database. We will also explain you how
to read each and every data and information that we generated and mentioned in the report.

15

Steps to find out Abnormal Price Effect

A. Collect data from Prowess Database and sent it to Excel Worksheet

As we mentioned earlier, we gathered daily share price data from Prowess Database
software and then to process on the data we sent them to the excel worksheet. The above sheet
represents the type of data that we got. We got closing price data, total volume traded, number of
trade took place during the day, total turnover took place during the day, total market capital of
BSE 500 and closing value of BSE 500 index
B. Find out daily script return

16

To process further, we need to find out daily script return of each day in comparison with
the previous days closing price. As this sheet represents how we found out the daily script return
in percentage terms by taking previous days closing as base.
C. Find out daily Market Return

To find out the daily market return, we used the same formula as we had used in finding out
the daily script return. As we can see in this sheet, we found out the BSE 500 return by
taking previous days closing as a base. The return that we found out by the mentioned
formula was in terms of numbers, but we turned it into percentage to make it meaningful
interpretation.

17

18

3.1 Introduction
In finance, the efficient-market hypothesis (EMH) asserts that financial markets are
"information ally efficient". The weak version of EMH supposes that prices on traded assets
(e.g., stocks, bonds, or property) already reflect all past publicly available information. The semistrong version supposes that prices reflect all publicly available information and instantly change
to reflect new information. The strong version supposes that market reflects even hidden/inside
information. There is some disputed evidence to suggest that the weak and semi-strong versions
are valid while there is powerful evidence against the strong version. Therefore, according to
theory, it is improbable to consistently outperform the market by using any information that the
market already has, except through inside trading.
The efficient-market hypothesis was developed by Professor Eugene Fama at the University Of
Chicago Booth School Of Business as an academic concept of study through his published Ph.D.
thesis in the early 1960s at the same school. It was widely accepted up until the 1990s, when
behavioral finance economists, who were a fringe element, became mainstream. Empirical
analyses have consistently found problems with the efficient-market hypothesis, the most
consistent being that stocks with low price to earnings outperform other stocks. Alternative
theories have proposed that cognitive biases cause these inefficiencies, leading investors to
purchase overpriced growth stocks rather than value stocks.

3.2 The Efficient Market Hypothesis

When the term efficient market was introduced into the economics literature thirty
years ago, it was defined as a market which adjusts rapidly to new information (Fama et al
1969).It soon became clear, however, that while rapid adjustment to new information is an
important element of an efficient market, it is not the only one. A more modern definition is that
asset prices in an efficient market fully reflect all available information (Fama 1991). This
implies that the market processes information rationally, in the sense that relevant information is
not ignored, and systematic errors are not made.
Fundamentals. The words in this definition have been chosen carefully, but they
nonetheless mask some of the subtleties inherent in defining an efficient asset market. For one
thing, this is a strong version of the hypothesis that could only be literally true if all available

19

information was costless to obtain. If information was instead costly, there must be a financial
incentive to obtain it.
Secondly, what does it mean to say that prices are consistent with fundamentals? We
must have a model to provide a link from economic fundamentals to asset prices. While there are
candidate models in all asset markets that provide this link, no-one is confident that these models
fully capture the link in an empirically convincing way. This is important since empirical tests of
market efficiency especially those that examine asset price returns over extended periods of
time are necessarily joint tests of market efficiency and a particular asset-price model.
Finally, a comment about the word efficient. It appears that the term was originally
chosen partly because it provides a link with the broader economic concept of efficiency in
resource allocation. Thus, Fama began his 1970 review of the efficient market hypothesis
(specifically applied to the stock market):
The primary role of the capital [stock] market is allocation of ownership of the
economys capital stock. In general terms, the ideal is a market in which price provide accurate
signals for resource allocation: that is, a market in which firms can make production-investment
decisions, and investors can choose among the securities that represent ownership of firms
activities under the assumption that securities prices at any time fully reflect all available
information.

3.3 Predictions of Efficient Market Hypothesis

The efficient market hypothesis yields a number of interesting and testable predictions about the
behavior of financial asset prices and returns. Consequently, a vast amount of empirical research
has been devoted to testing whether financial markets are efficient. While the bad model
problem plagues some of this research, it is possible to draw important conclusions about the
informational efficiency of financial markets from the existing body of empirical research. This
section presents a selective survey of the evidence. Our conclusions are summarised in the table
and explained in more detail in the pages that follow.

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3.4 Random Walk Theory

What It Is:
The random walk theory states that market and securities prices are random and not influenced
by past events. The idea is also referred to as the "weak form efficient-market hypothesis."
Princeton economics professor Burton G. Malkiel coined the term in his 1973 book A Random
Walk Down Wall Street.

3.5 How it Works/Example:

The central idea behind the random walk theory is that the randomness of stock prices renders
attempts to find price patterns or take advantage of new information futile. In particular, the
theory claims that day-to-day stock prices are independent of each other, meaning that
momentum does not generally exist and calculations of past earnings growth does not predict
future growth. Malkiel states that people often believe events are correlated if the events come in
"clusters and streaks," even though streaks occur in random data such as coin tosses.
The random walk theory also states that all methods of predicting stock prices are futile in the
long run. Malkiel calls the notion of intrinsic value undependable because it relies on subjective
estimates of future earnings using factors like expected growth rates, expected dividend payouts,
estimated risk, and interest rates.
The random walk theory also considers technical analysis undependable because, according to
Malkiel, chartists buy only after price trends are established and sell only after price trends are
broken; essentially, the chartists buy or sell too late and miss the boat. According to the theory,
this happens because stock prices already reflect the information by the time the analyst moves
on the stock. Malkiel also notes that the widespread use of technical analysis reduces the
advantages of the approach.

21

Malkiel acknowledges some statistical anomalies pointing to some exceptions to the random
walk theory:
Prices of small, less liquid stocks seem to have some serial price correlation in the shortterm because they do not incorporate information into their prices as quickly.
Contrarian strategies tend to outperform other strategies because reversals are often based
on economic facts rather than investor psychology.
There are seasonal trends in the stock market, especially at the beginning of the year and
the end of the week.
Stocks with low P/E ratios tend to outperform those with high P/Es, although the
tendency is volatile over time.
High-dividend stocks tend to provide higher returns over time because during down
markets the high dividend yields often create demand for these stocks and thus increases
the price.

3.5 Why It Matters:

The random walk theory proclaims that it is impossible to consistently outperform the market,
particularly in the short-term, because it is impossible to predict stock prices. This may be
controversial, but by far the most controversial aspect of the theory is its claim that analysts and
professional advisors add little or no value to portfolios. As Malkiel put it, "Investment advisory
services, earnings predictions, and complicated chart patterns are useless... Taken to its logical
extreme, it means that a blindfolded monkey throwing darts at a newspaper's financial pages
could select a portfolio that would do just as well as one carefully selected by the experts."
Malkiel and the random walk theory provide considerable support to the intimidated individual
investor, but Malkiel in particular encourages investors to understand the theories and investment
methods that the random walk theory challenges. Malkiel therefore advocates a buy-and-hold
investment strategy as the best way to maximize returns.

22

3.6 Do Asset Prices Move as Random Walks?

Asset prices in an efficient market should fluctuate randomly through time in response to the
unacticipated component of news (Samuleson 1985). Prices may exhibit trends over time, in
order that the total return on a financial asset exceed the return on a risk-free asset by an amount
commensurate with the level of risk undertaken in holding it. However, even in this case,
fluctuations in the asset price away from trend should be unpredictable. This section examines
the emphirical evidence for this random walk hypothesis for stock prices. On balance, the
evidence suggests that the hypothesis is at least approximately true.
In the aggregate US share market; above-average stock returns over a daily, weekly or monthly
interval increase the likelihood of further above-average returns in the subsequent period
(Campbell, Lo and Mackinlay 1997). However, for example, only about 12 per cent of the
variance in the daily stock price index can be predictability than portfolios of large stocks. There
is also some weak evidence that the degree of predictability has diminished over time. In a
related literature, a number of studies have found evidence of mean reversion in returns on stock
portfolios at horizons of three to five years or longer (Poterba and Summers 1988; Fama and
French 1988).

23

24

4.1 Dividend decisions

Dividends decisions are an important aspect of corporate financial policy since they can has an
effect on the availability as well as the cost of capital. The Lintner proposition which asserts that
the corporate management maintains a constant target payout ratio has been the most influential.
However, the concepts of primary of dividend decisions as well as the reasons for it are not
unambiguously defined. There is a variety of theories which attempt to rationalize the observed
secular constancy of the dividend payout ratio. These studies examine the factors underlying the
secular constancy of the dividend payout ratio. These studies examine the factors underlying the
structure of the management, the nature of the product and financial markets, as well as the
influence of the shareholders in their attempt to explain the Lintner proposition. However, in the
case of any one firm, the following two pertinent questions need to be examined on an empirical
basis to provide substance to the notion of primary of dividend decisions. (a) What are dividend
decisions primary for.
The modeling framework postulates that (a) the dividend decisions may be primary to
management of the firm and/or the shareholder, and (b) each of the decision makers can have a
short run and/or long run objective when they evaluate dividend decisions. Share price increases
have been postulated as the basic short run objective of both the groups of decisions. Share price
increases have been postulated as the basic short run objective of both the groups of decision
makers. Similarly, both the share holders and the management are viewed as net worth
maximizes over long run.
The fundamental hypothesis for the short run models is that the management increases the
dividend per share whenever the share price, and that the share holder responds, to these in such
a way as to increase the share price. This result is expected if dividend decisions are primary for
both the groups.
In the long run context, it was felt that a progressive management would increase the net worth
the firm by investments in fixed assets of through building the reserve base. Dividends would be
primary decision if the internal financing of investment is constrained by the necessity to pay
dividends at a constant rate.
These are two extreme forms on which dividend decisions can be considered to be primary. A
variety of intermediate positions are possible in any specific case of a firm. The models were
designed to accommodate a rich variety of such behavioral patterns. The theoretical structure
was empirically tested for 71 firms of the corporate sector in 6 industries using the data of the
Bombay Stock Exchange Directory for the period 1967-68 to 1980-1. The results generally
indicate that the methodology of the present study would be helpful in examine the notion of the
primary of corporate dividend policy.

25

The following are the salient features of the empirical results.

In the case of 17 firms dividend decisions were found to be primary. The factors which
accounted for primary were the following:
Need to build the desired internal reserve base in the long run, and
Inadequacy of funds to finance available investment opportunities while
maintaining a desired payout ratio.
The Lintner hypothesis was validated under the following circumstance:
The managers are oriented towards building up reserves to minimize dependence on
external funds,
There is a lack of motivation or market opportunity for growth of the firm and
There is no shortage of funds to pursue the desired objectives.
Primary of dividends in the long run was observed in the case of 27 firms. The
significant reasons were
Shortage of funds to take care of growth opportunities as well as requisite dividends,
and
Inadequacy of funds the desired reserve base.
Throughout this analysis dividend decisions were considered to be primary, if and only if, both
the groups of decision makers agree to the same objective and respond to each others perception
of goal satisfaction. Viewed from this vantage point dividend decision were primary only in a
few cases. The Lintner hypothesis of a constant dividend payout ratio appears to hold only
because of managerial motivations and not as a response to share holders desire. To that extent
attributing primary to dividend decisions in such content appears to be misplaced. Most of the
management in the corporate sector appears to desire the security of internal financing and build
reserves s a priority after paying certain minimum dividend per share. Despite these conclusions
from the models of the present study two inadequacies became apparent during the course of
work:

26

4.2 Role of insider trading

The existence and implications of asymmetric information in financial markets has been the
subject of extensive research in the finance literature. Two of the major propositions in this
literature are that (1) corporate insiders take advantage of asymmetric information by trading on
their informational advantage and (2) dividend policy is related to asymmetric information.
Taken together, these propositions imply that the dividend policy of a firm and the trading gain
realized by its insiders may be related because both are related to the level of information
asymmetry between the firms inside and outside investors.
The first proposition arises from the widely accepted notion that corporate insiders often possess
and trade on information about the value of their firms shares (relative to the current stock price)
that outside investors do not possess. This information asymmetry gives insiders the ability to
identify and take advantage of mispricing in the shares of their own firms. Jaffe(1974), finnerty
(1976), seyhun (1986), jeng, Metrick, and Zeckhauser (1999), and Lakonishok and Lee (2001)
provide evidence that insiders earn significant abnormal profits from trading in their own firms
shares, though estimates of the sizes of the size of these profits vary widely. It should be noted
that this trading is within the legal boundaries set by the securities and exchange commission
(SEC) and is therefore not illegal insider trading.
The second proposition is consistent with three different theories about the role of dividend
policy in financial markets. The first theory is what we shall refer to as the free cash flow
theory of dividends. This theory focuses on the divergence of interest between managers and
shareholders and on dividends as a disciplining mechanism that reduces the agency cost
associated with such a divergence. The payment of dividend reduces free cash flow, forcing
firms to enter the capital market more frequently and divulge information as they attempt to get
financing for their operations and investments. This subjects them to the scrutiny of investment
bankers, analysts, and potential new investors more often and serves to reduce the investors.
Thus, higher dividend should be associated with reduced information asymmetry, all else being
equal.
The second theory is what we shall call the institutional monitoring theory which is based on
allen bernardo and Welch (2000). This theory rests on two assumptions. The first is that
institutional investors are more effective at monitoring management than retail investors. Due to
the size of their investments and the resources at their disposal, institutional investors have
greater incentive and ability to gather and analyze information pertaining to their investments, as
well as a greater ability to discipline management and push for changes when management
performs poorly. The second assumption is that institutional investors prefer high dividends
relative to individual investors due to mainly the tax effects.

27

28

AUTO SECTOR
Hero Honda
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-11.63%
2.32%
-13.39%
-2.12%
-0.57%
0.49%
6.93%
0.05%

Abnormal Return (Volume):

No

AD-30 to
AD-1

AD-10
to AD-1

AD

AD+1 to ED-1

ED

ED+1 to
ED+10

ED+1 to
ED+30

Cum. AB

2,433.26

866.75

192.74

28,629,179.75

373,877.20

3,697,713.3
9

8,055,547.7
7

2
3

Days
Ave.
Daily AB
(1/2)

30
81.11

10
86.68

1
192.74

53
540173.20

1
373877.19

10
369771.34

30
268518.26

Ave. Vol.

AB/Ave
(3/4)

913.80
0.09

0.09

0.21

200.83

409.14

404.65

293.85

29

Hero Honda
Cum.AB Return

10.00%

%Cum.AB Return

5.00%

6.93%

2.32%
0.49%

0.00%
-0.57%
-2.12%
-5.00%

-10.00%
-13.39%

-11.63%
-15.00%

AD-30
TO AD01
Series1 -11.63%

AD-10
TO AD1
2.32%

AD

AD+1-E
D-1

ED

ED+1-E
D+10

ED+1-E
D+30

-13.39%

-2.12%

-0.57%

0.49%

6.93%

HERO HONDA
Price Effect
0.00%

% Cum.AB.Return

-5.00%
-10.00%
-15.00%
-20.00%
-25.00%
-30.00%

AD
-3
0

Series1

AD
-1 AD
0

ED
ED 10
TIME PERIOD

ED
30

30

Interpretation
We can see that before announcement date of dividend within the period of 30 days there was
huge abnormal effect on price. This might be because of leakages of insider information. Before
ten days of announcement date there was a sharp rise in prices. Prices tend to fluctuate during the
period between AD to ED. But after effective date nominal changes took place in price. But no
positive cumulative returns are generated. So investors have to think before they invest in this

Ratio of AB Volume to Ave. Volume

Hero Honda
Volume Effect
450.00
400.00
350.00
300.00
250.00
409.14

200.00

404.65

150.00

293.85

100.00

200.83

50.00
0.00

0.09

0.09

AD-30
AD-10
TO AD-1 TO AD-1
Series1

0.09

0.09

0.21
AD

AD+1
TO ED-1

ED

ED+1
TO
ED+10

ED+1
TO
ED+30

0.21

200.83

409.14

404.65

293.85

Interpretation
The above chart and table suggest that there is abnormality in the volume to considerable extent.
Till announcement date there was no huge volume of trade taking place. But after announcement
date the volume trading goes on increasing. On announcement date there was fall in price of the
script but after AD price went on increasing and also the volume was increasing. On ED
maximum volume of trading took place and sharp rise in price was also seen on that date. This
indicates the impact of distribution of dividend news on stock market. However after that the
volume trading went on decreasing as well price after ED+30 has shown a rising trend

31

Maruti Suzuki
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-16.78%
-9.31%
-1.50%
-31.58%
0.24%
-0.78%
-0.68%
-0.30%

Abnormal Return (Volume):

N
o

AD-30 to AD1

AD-10 to
AD-1

AD

AD+1 to ED1

ED

ED+1 to
ED+10

ED+1 to
ED+30

Cum.
AB

-1,670,679.03

405,328.69

272,920.05

14,078,952.9
5

-218,981.95

1,328,906.5
9

2,972,149.
82

2
3

Days
Ave.
Daily
AB (1/2)

30
-55689.30085

10
40532.8692
3

1
272920.051
3

130
-265640.6217

1
-218981.9487

10
-132890.659

30
99071.660
68

Ave.
Vol.

AB/Ave
(3/4)

322488.94
87
-0.17

-0.13

0.85

-0.34

-0.68

-0.41

-0.31

32

Maruti Suzuki
Cum.AB Return

5.00%
0.00%

0.24%

-1.50%

-0.78%

-0.68%

%Cum.AB Return

-5.00%
-9.31%

-10.00%
-15.00%

-16.78%

-20.00%
-25.00%
-30.00%

-31.58%

-35.00%
AD-30
TO
AD-01
Series1 -16.78%

AD-10
TO AD-1

AD

AD+1-E
D-1

ED

ED+1-ED
+10

ED+1-ED
+30

-9.31%

-1.50%

-31.58%

0.24%

-0.78%

-0.68%

0.00%

Maruti Suzuki
Price Effect

% Cum. AB. Return

-10.00%
-20.00%
-30.00%

Series1

-40.00%
-50.00%
-60.00%

AD
-3
0

Series1

AD
-1 AD
0

ED

Time Period

ED
+1
0

ED
+3
0

33

Interpretation
We can find that there is a perfect negative trend line in the price effect chart. The Cum AB
returns are falling. However on Announcement date a positive rise was seen in price of script but
after that again it went on reducing. Again on during period near ED there was nominal rise in
prices but after that it went on fluctuating and after ten days of ED there was fall in price and
after that it again had rise. So we can interpret that announcement and effective dates had a short
term impact on price but after that price always decreased. This shows the bearish trend in
market has affected the script. This might be due to high positive beta of the script. However this

Ratio of AB Volume to Ave. Volume

is not a good script for the investors to invest .

Maruti Suzuki
Volume Effect
1.00
0.80
0.60
0.40
0.20
0.00
-0.20
-0.40
-0.60
-0.80

0.85

-0.17

-0.13
-0.34

-0.41

-0.31

-0.68
AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.17

-0.13

0.85

-0.34

-0.68

-0.41

-0.31

Series1

Interpretation
We can see positive abnormal volume on announcement date but after that the volume has shown a
decreasing trend. Before announcement date also there was a negative abnormal volume in script.
But on announcement date maximum volume of trade took place and even there was increase in
price of script on announcement date. This is due to the news of declaration of dividend. We can
say that the move of declaring dividend has not been able to generate either positive abnormal
volume or positive cum AB return for the investors

34

Tata Motors
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-26.62%
2.00%
-3.85%
17.09%
-1.22%
16.13%
25.56%
0.11%

Abnormal Return (Volume):

N
o

AD-30 to
AD-1

AD-10 to
AD-1

AD

AD+1 to ED-1

ED

ED+1 to
ED+10

ED+1 to
ED+30

Cum. AB

-139919.63

-40050.05

2902.87

-162581.92

357.87

131518.95

179215.9
7

2
3

Days
Ave.
Daily AB
(1/2)
Ave. Vol.

30

10

53

10

30

-4663.99

-4005.01

2902.87

-3067.58

357.87

13151.89

5973.87

AB/Ave
(3/4)

-0.22

4
5

21016.13
-0.19

0.14

-0.15

0.02

0.63

0.28

35

Tata Motors
Cum.AB 17.09%
Return

30.00%

16.13%

10.00%
2.00%
0.00%

-1.22%

-3.85%
-10.00%
-20.00%
-30.00%

Series1

-26.62%
AD-30
TO
AD-01
-26.62%

AD-10
TO AD-1

AD

AD+1ED-1

ED

ED+1ED+10

ED+1-ED
+30

2.00%

-3.85%

17.09%

-1.22%

16.13%

25.56%

20.00%

Tata Motors
Price Effect

10.00%
% Cum. AB. Return

%Cum.AB Return

20.00%

25.56%

0.00%
-10.00%
-20.00%
-30.00%
Series1
-40.00%
-50.00%

AD
30

Series1

AD
-1
0

AD

ED
Time Period

ED
+1
0

ED
+3
0

36

Interpretation
We can observe a positive Cum AB return before 30 days of announcement date. But before 10
days of announcement date there was sharp fall in the price. However after that again had rise
but for very short period and again on announcement date there was no positive effect on price.
After announcement date there was nominal rise in price but again it followed a declining trend.
But after effective date price started increasing and showed a positive trend. It generated positive
cumulative abnormal return after effective date. This chart shows positive trend in price of script.
Investors have positive expectation about this script so that dividend and other factors in market

Ratio of AB Volume to Ave. Volume

are not able to change their expectations. Thus we can say that it is good script to invest.

Tata Motors
Volume Effect

0.70

0.63

0.60
0.50
0.40
0.30

0.20

0.14

0.10
0.00
-0.20
-0.30

Series1

0.28

0.02

-0.10

-0.12

-0.19

-0.22
AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.22

-0.19

0.14

-0.12

0.02

0.63

0.28

Interpretation
We can see that there has been a positive effect on volume on announcement and effective date.
However during the period between ED to ED+10 there was maximum effect on volume. During
that time period price also showed a continuous rise. Though after 10 days of effective date there
was a decline seen volume but the price still had shown the rising trend. But still it generates a
positive abnormal volume effect. This indicates a signal of removal of abnormality in the script
volume.

37

BANKING SECTOR
SBI Bank
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

7.47%
-2.30%
-2.15%
0.70%
-2.87%
10.73%
14.49%
13.28%

Abnormal Return (Volume):

N
o

AD-30 to
AD-1

AD-10 to
AD-1

AD

AD+1 to ED1

ED

ED+1 to
ED+10

ED+1 to
ED+30

Cum.
AB

1,602,983.21

1,827,976.31

360,368.2
8

-4,492,536.08

-363,218.72

2,915,610.74

9,034,619.
79

2
3

Days
Ave.
Daily
AB (1/2)
Ave.
Vol.

30
-53432.77

10
-182797.63

1
360368.2
8

28
-84764.83

1
-363218.72

10
-291561.07

30
301153.99

AB/Ave
(3/4)

-0.05

1036962.7
2
-0.18

0.35

-0.15

-0.35

-0.28

-0.29

38

SBI
Cum. Ab. Return
% Cum.AB.Return

16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%

Cum. Ab. Return

14.49%
10.73%

7.47%

0.70%

-2.30%
AD-30
TO
AD-01
7.47%

AD-10
TO
AD-1
-2.30%

-2.15%

-2.87%

AD

AD+1ED-1

ED

ED+1ED+10

ED+1ED+30

-2.15%

0.70%

-2.87%

10.73%

14.49%

TIME PERIOD

20.00%

SBI BANK
Price Effect

% CUM. AB. RETURN

15.00%
10.00%
5.00%
0.00%
-5.00%

Series1

AD
30

Series1

AD
10

AD

ED
TIME PERIOD

ED
+1
0

ED
+3
0

39

Interpretation
We can view that before the dividend was announced there was a negative Cum.AB. Return. This
chart indicates that on announcement date and effective date the script gave maximum negative
Cum. AB return. But after announcements and effective dates there was a positive cumulative
abnormal return generated. From this chart thus we can generate that this generates positive

Ratio of AB Volume to Ave. Volume

cum.AB. Returns for the investors. So this is good script to invest in

SBI BANK
Volume Effect
0.35

0.40
0.30
0.20
0.10
0.00
-0.05

-0.10
-0.20

-0.15

-0.18

-0.30
-0.40

-0.35

-0.28

-0.29

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.05

-0.18

0.35

-0.15

-0.35

-0.28

-0.29

Series1

Interpretation
As we see that there is a big amount of positive abnormality in volume on announcement date. This
could be due to great amount of liquidity in script and price could be such that small investors
tempted to invest in it. But there is fall in AB volume after announcement date. After annocement
date the volume has decreased. Moreover the price chart also indicates the positive return. This
shows that the decrease in volume is due to the few buyers who are ready to buy this share at higher
price.

40

ICICI Bank
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-8.95%
-3.81%
-8.95%
-7.44%
-6.15%
13.88%
19.57%
0.11%

Abnormal Return (Volume):

N
o

AD-30
TO AD-1

1. CUM. AB

16987202.
77

2. DAYS
AVE.DAILY
3. AB (1/2)
4. AVE.VOL.
AB/AVE
5. (3/4)

AD-10
TO AD-1

AD+1
ED+1 TO ED+1 TO
AD
TO ED-1 ED
ED+10
ED+30
- 38149 32821128 141632 17125798. 48899142.
999433.85
68.69
.23
60.08
15
77

30.00

10.00

1.00
38149
68.69

44.00
619266.5
7

1.00
141632
60.08

10.00
1712579.8
2

30.00
1629971.4
3
4281562.3
1

566240.09

-99943.38

0.13

-0.02

0.89

-0.17

-3.31

-0.40

-0.38

41

ICICI BANK
Cum.AB Return

20.00%

13.88%

15.00%
%Cum.AB Return

19.57%

10.00%

5.00%

0.00%
-3.81%

-5.00%

-7.44%
-8.95%

-6.15%

-8.95%

-10.00%

15.00%

ICICI BANK
Price Effect

% CUM. AB. RETURN

10.00%
5.00%

0.00%
-5.00%
-10.00%
Series1

-15.00%
-20.00%

AD
-3
0

Series1

AD
-1
0

AD

ED
TIME PERIOD

ED
+1
0

ED
+3
0

42

Interpretation
We can see that before the dividend was announced the script generated negative Cum. AB.
Return. But before 10 days of announcement date a sharp rise in price was seen. This might be
due to the inside information leakage. On announcement date again there was a negative
cumulative abnormal return but after that the script generated good positive return. So we can
say that the declaration of news of announcement and effective date generated positive returns
for the company. Also we can infer from the chart that there as positive trends in price of

Ratio of AB Volume to Ave. Volume

company. Thus this is the good script to invest in for the investors.

1.50
1.00
0.50
0.00
-0.50
-1.00
-1.50
-2.00
-2.50
-3.00
-3.50
-4.00

Series1

ICICI BANK
Volume Effect
0.89

0.13

-0.17

-0.02

-0.40

-0.38

-3.31

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.13

-0.02

0.89

-0.17

-3.31

-0.40

-0.38

Interpretation
We can see that there is abnormality generated in volume on announcement and effective date. On
announcement date the script generated highest positive cum. AB. Return and on effective date it
generated highest negative cum.AB. Return. However when we compare it with price effects. We
can see that inverse relation is there. Though the share price is rising but the investors are not ready
to purchase at high price. And more of selling has taken place. Due to this negative abnormal
volume is created.

43

HDFC Bank
Abnormal Return (Price): (In Percentage)
Time Window

Cum. Ab. Volume

AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

7.61%
3.29%
-2.15%
10.05%
0.44%
-4.63%
-7.85%
0.06%

Abnormal Return (Volume):

No
1

CUM. AB

DAYS

AVE.DAILY
AB (1/2)

AVE.VOL.

AB/AVE (3/4)

AD-30
TO AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

739209.92

-525920.08

109142.15

30.00

10.00

-24640.33

-52592.01

ED+1 TO
ED+30

6712620.00

-267248.15

1998830.23

-4730018.38

1.00

53.00

1.00

10.00

30.00

109142.15

126653.21

-267248.15

-199883.02

-157667.28
365010.15

-0.07

-0.14

-0.30

0.35

-0.73

-0.55

-0.43

44

HDFC BANK
10.05%
Cum.AB
Return

12.00%
10.00%

7.61%

8.00%

3.29%

4.00%

2.00%

0.44%

0.00%
-2.00%

-2.15%

-4.00%

-4.63%

-6.00%
AD-10
TO AD-1

AD

AD+1-ED
-1

ED

ED+1-ED
+10

-7.85%
ED+1-ED
+30

3.29%

-2.15%

10.05%

0.44%

-4.63%

-7.85%

-8.00%

Series1

AD-30
TO
AD-01
7.61%

20.00%

HDFC Bank
Price Effect

15.00%
%Cum .AB. Return

%Cum.AB Return

6.00%

10.00%

5.00%

0.00%

-5.00%

Series1

AD
30

Series1

AD
10

AD

ED
Time Period

ED
+1
0

ED
+3
0

45

Interpretation
We can see from the above chart that there was a negative abnormal return in the script before 30
days of the announcement date. But after that it is generating positive cum abnormal return till
the period nearer to effective date. But in the remaining half period between AD to ED the prices
started declining. After the effective date it again showed a rising trend. This indicates that after
the effective date the investors would have shown more interest in selling of shares. From the
above chart we can interpret that no drastic effect has been seen on announcement date and

Ratio of AB Volume to Ave. Volume

effective date.

HDFC BANK
Volume Effect
0.40

0.32

0.20
0.00
-0.20

-0.07
-0.14
-0.30

-0.40

-0.43

-0.60
-0.80

Series1

-0.55
-0.73
AD-30 TO
AD-1

AD-10 TO
AD-1

-0.07

-0.14

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.30

0.32

-0.73

-0.55

-0.43

Interpretation
We can see from the above chart that on announcement date and effective date there was a
negative cumulative abnormal volume generated. During that time price was also rising. But on
the effective date price had rise to maximum level. At that time even the maximum abnormal
volume was also generated. From this we can interpret that investors were waiting for the
effective distribution date. After the distribution of dividend investors started selling of their
shares and the abnormality began to reduce gradually after the effective dividend distribution
date.

46

CAPITAL GOODS SECTOR

BHEL Ltd.
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

0.12%
1.50%
0.01%
11.45%
-1.19%
-2.48%
-2.48%
0.04%

Abnormal Return (Volume):

AD-30 TO
AD-1

No
1 CUM. AB
2 DAYS
AVE.DAILY
AB (1/2)

3
4 AVE.VOL.
5

AB/AVE
(3/4)

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-989480.90

3945425.56

10.00

30.00

-98948.09

-131514.19

-1322302.31

-39453.77

-165658.13

10505270.97

110721.13

30.00

10.00

1.00

53.00

-44076.74

-3945.38

-165658.13

-198212.66

1.00
110721.13

325027.13
-0.14

-0.01

-0.51

-0.61

-0.34

-0.30

-0.40

47

12.00%

BHEL Ltd
Cum.AB Return

10.00%

11.45%

6.00%
4.00%
1.50%

2.00%

0.12%

0.01%

0.00%
-1.19%

-2.00%

-2.48%

-2.48%

-4.00%

Series1

AD-30
TO AD01
0.12%

AD-10
TO AD-1

AD

AD+1ED-1

ED

ED+1-ED
+10

ED+1-ED
+30

1.50%

0.01%

11.45%

-1.19%

-2.48%

-2.48%

16.00%

BHEL LTD.
Price Effect

14.00%
12.00%
10.00%
% Cum.AB. Return

%Cum.AB Return

8.00%

8.00%
6.00%
4.00%
2.00%

0.00%

Series1

-2.00%
-4.00%
-6.00%

AD
30

Series1

AD
- AD
10

ED
Time Period

ED
+1
0

ED
+3
0

48

Interpretation
We can see from the above chart that before one month of announcement date the script
generated positive cum abnormal return. But during the period between AD 30 to AD 10 there
was negative effect on price. After that price it had again shown a rising trend from the period
between AD 10 to ED 10. This indicates that during this time period investors had shown more
interest in purchasing the script. After the 10 days of effective dividend distribution date again
the negative effect on the price was seen. This indicates that after the effective distribution date

Ratio of AB Volume to Ave. Volume

share holders began to sell of the scripts.

BHEL LTD.
Volume Effect
0.00
-0.01

-0.10

-0.14

-0.20
-0.30
-0.40

-0.34

-0.34

-0.30
-0.40

-0.50
-0.60

-0.51
AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.14

-0.01

-0.51

-0.34

-0.34

-0.30

-0.40

Series1

Interpretation
We can observe from the above chart that the script generated overall negative cumulative
abnormal return for the share holders. On the AD maximum abnormal volume was there. This is
because of announcement of dividend. Lots of intraday trading would have taken place on this
day. And this might be one of the reasons for huge abnormality in volume on that day. Before the
AD script volume effect tend to react in normal manner. But after the drastic impact on volume
on the AD it again tried to rise and become normal. With the rising prices investors had shown
more interest in selling the shares and there by earn the short term gains.

49

L & T Ltd.
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-0.60%
2.40%
0.84%
-10.07%
2.05%
-0.78%
-8.27%
-0.12%

Abnormal Return (Volume):

No
1 CUM. AB
2 DAYS

AD-30
TO AD1

AD-10
TO AD1

AD+1
TO ED1

7498.84

4652.10

628.61

43904.49

764.56

6655.20

19902.48

30.00

10.00

1.00

80.00

1.00

10.00

30.00

249.96

465.21

628.61

764.56

665.52

663.42

AD

4 AVE.VOL.
5 AB/AVE (3/4)

ED+1
TO
ED+30

548.81

AVE.DAILY AB

3 (1/2)

ED

ED+1
TO
ED+10

713.19
0.35

0.65

0.88

0.77

1.07

0.93

0.93

50

4.00%

2.40%

2.00%

L & T Ltd.
2.05%
Cum.AB
Return
0.84%

-0.60%

-0.78%

-2.00%
-4.00%
-6.00%
-8.27%

-8.00%
-10.07%

-10.00%
-12.00%

Series1

AD-30
TO
AD-01
-0.60%

AD-10
TO AD-1

AD

AD+1-ED
-1

ED

ED+1-ED
+10

ED+1-ED
+30

2.40%

0.84%

-10.07%

2.05%

-0.78%

-8.27%

L & T Ltd.
Price Effect

15.00%

10.00%

%Cum. AB. Return

%Cum.AB Return

0.00%

5.00%
0.00%
-5.00%
-10.00%
-15.00%
Series1
-20.00%

AD
30

AD
10

AD

ED

Series1
Time Period

ED
+1
0

ED
+3
0

51

Interpretation
We can see from the above chart that before the announcement date script generated positive
cumulative abnormal return. Again during the period from announcement date to effective date
there was a rising trend. But after the effective date the script again began to generate negative
cumulative abnormal return. This indicates that large amount of buying took place during the
period upto the effective date. But after the dividend were distributed the investors started selling
their shares. This created a huge selling pressures and due to this price had come down.

L & T ltd
Volume Effect

Ratio of AB Volume to Ave. Volume

1.20
1.00
0.80
0.60

1.07

0.88

0.40
0.65

0.20
0.00

0.93

0.93

0.77

0.35
AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO ED1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.35

0.65

0.88

0.77

1.07

0.93

0.93

Series1

Interpretation
We can see from the above chart that this script generated a good positive cumulative abnormal
return. Before the announcement date it tend to be high. On the effective date it generated
maximum positive cum abnormal volume. This indicates that lots of intra day trading would
have taken place on that day. However in overall sense it creates positive cumulative abnormal
return and it can be considered a good script to invest.

52

BEML LTD
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

1.75%
-1.87%
15.79%
-51.52%
-1.41%
-8.86%
-20.32%
-0.41%

Abnormal Return (Volume):

No
1 CUM. AB
2 DAYS
AVE.DAILY
3 AB (1/2)
4 AVE.VOL.
AB/AVE
5 (3/4)

AD-30
TO AD-1

AD-10
AD+1 TO
ED+1 TO ED+1 TO
TO AD-1 AD
ED-1
ED
ED+10
ED+30
235732.84 87812.19 26164.86 118530.70 11627.86 128602.19 418740.57
30.00
7857.76

10.00

1.00
-8781.22 26164.86

77.00

1.00
1539.36 11627.86

10.00

30.00

-12860.22

-13958.02
46522.86

0.17

-0.19

-0.56

0.03

-0.25

-0.28

-0.30

%Cum. AB. Return

53

BEML LTD
Cum AB. Return

50.00%
0.00%
-50.00%
-100.00%
AD30
TO
AD01

AD10
TO
AD-1

AD

AD+
1-ED
-1

ED

ED+1
-ED+
10

Series1

ED+1
-ED+
30

Time Period

%Cum. AB. Return

BEML LTD
Price Effect
30.00%
20.00%
10.00%
0.00%
-10.00%
-20.00%
-30.00%
-40.00%
-50.00%
-60.00%

Series1

AD
30

AD
- AD
10

ED
ED +1
0

Series1
Time Period

ED
+3
0

54

Interpretation
From the above chart we can see that before announcement date the script generated positive
cumulative abnormal return. But after announcement date the price showed a negative trend.
Again on effective date it had shown some rise but immediately after that it began to fall down.

Ratio of AB Volume to Ave. Volume

This shows that there is positive impact of declaration of announcement date and effective date.

BEML LTD.
Volume Effect
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%

Series1

0.17

0.03

-0.56

-0.19

-0.25

-0.28

-0.30

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.17

-0.19

-0.56

0.03

-0.25

-0.28

-0.30

Interpretation
From the above chart we can see that on announcement date huge amount of abnormality was seen
in the script. Before one month of announcement date the script generated positive cum AB return
but again on effective date abnormality was seen in the script and after that it continued in the
entire event period. One have to think before investing in this script because it generates negative
cum AB Return.

55

FMCG SECTOR
Colgate Palmolive
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

8.49%
1.65%
0.64%
-10.79%
-1.11%
-1.88%
-4.00%
-0.05%

Abnormal Return (Volume):

No

AD-30 TO
AD-1
1177893.23

CUM. AB

30.00
DAYS
AVE.DAILY
-39263.11
AB (1/2)

3
4
5

AVE.VOL.
AB/AVE
(3/4)

AD-10
TO AD-1
187461.72

45185.53

AD+1 TO
ED-1
1594751.70

10.00

1.00

33.00

-18746.17

45185.53

-48325.81

AD

ED
102838.47
1.00
102838.47

ED+1 TO
ED+10
822364.72

ED+1 TO
ED+30
1795212.23

10.00

30.00

-82236.47

-59840.41
116674.47

-0.34

-0.16

0.39

-0.41

-0.88

-0.70

-0.51

56

%Cum.AB.Return

Colgate Pamolive
Cum. AB. Return
10.00%
8.49%
1.65%0.64%
-1.11%-1.88%
-4.00%
-10.79%
-10.00%
0.00%

-20.00%
Series1
1

Series1 8.49% 1.65% 0.64% -10.79% -1.11% -1.88% -4.00%

Time Period

20.00%

Colgate Pamolive Ltd.

Price Effect

% CUM. AB . RETURN

15.00%
10.00%
5.00%
0.00%
-5.00%

Series1

-10.00%
-15.00%

AD
30

Series1

AD
10

AD
TIME PERIOD

ED

ED
+1
0

ED
+3
0

57

Interpretation
From the above chart we can see that the script generated negative cumulative abnormal return.
But starting from before ten days of announcement date the script started generating positive
cumulative abnormal return. One of the reason for this might be the leakage of insider
information which might have cause such a price hike. But again starting from before few days
of effective date of dividend it again began to fall downwards. Overall the script generated

Ratio of AB Volume to Ave. Volume

negative cumulative abnormal return. So this is not a good script to invest in.

Colgate Pamolive Ltd.

Volume Effect
0.60
0.40
0.20

0.39

0.00
-0.20

-0.34

-0.16
-0.41

-0.40

-0.88

-0.70

-0.51

-0.60
-0.80
-1.00

Series1

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.34

-0.16

0.39

-0.41

-0.88

-0.70

-0.51

Interpretation
From the above chart we can see that the script generated positive cumulative abnormal return on
announcement date. But again on effective date it again generated a huge negative cumulative
abnormal return. We can say that maximum intraday trading might have taken place on
announcement date with the declaration of news. Overall the script have generated negative
cumulative abnormal return which is not good on the part of the investors. So this is not the good
script to invest.

58

HUL Ltd
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

3.75%
-0.46%
-1.78%
11.52%
-0.59%
6.65%
18.15%
0.33%

Abnormal Return (Volume):

CUM. AB

AD-30
TO AD-1
1707260.6
2

DAYS

30.00

10.00

AVE.DAIL
Y AB (1/2)

-56908.69

142121.8
101437.38 5

No

4
5

AVE.VOL.
AB/AVE
(3/4)

AD-10
TO AD-1 AD
1014373.7 142121.8
7
5
1.00

AD+1
TO ED1
539240.4
6
31.00

17394.85

ED
345653.1
5
1.00
345653.1
5

ED+1 TO
ED+10
2080499.9
2

ED+1 TO
ED+30
6339884.2
3

10.00

30.00

208049.99

211329.47
578620.15

-0.10

-0.18

0.25

0.03

-0.60

-0.36

-0.37

59

HUL Ltd.

20.00%
18.00%
16.00%
%Cum.AB Return

14.00%
12.00%
10.00%

18.15%

8.00%
11.52%

6.00%
4.00%
2.00%
0.00%

6.65%
3.75%
-1.78%

-0.46%

-0.59%

-2.00%

Series1

AD-30
TO AD01
3.75%

AD-10
TO AD-1

AD

AD+1ED-1

ED

ED+1ED+10

ED+1ED+30

-0.46%

-1.78%

11.52%

-0.59%

6.65%

18.15%

35.00%

HUL Ltd.
Price Effect

% CUM. AB RETURN

30.00%
25.00%
20.00%
15.00%
10.00%
5.00%

Series1

0.00%
-5.00%

AD
30

Series1

AD
10

AD

ED
TIME PERIOD

ED
+1
0

ED
+3
0

60

Interpretation
From the above chart we can observe that the script generated negative cumulative abnormal
return in the beginning but on announcement date there was a cumulative positive abnormal
return. Till the effective date no such huge abnormal changes were apperent in price effect but
starting from few days of effective date there was a drastic positive change in price effect and it
generated a huge positive cumulative abnormal return for the shareholders. This is good on part

Ratio of AB Volume to Ave. Volume

of investors. So it is good script to invest.

HUL Ltd.
Volume Effect
0.30

0.20
0.25

0.10
0.00
-0.10

-0.10

0.03
-0.18

-0.20
-0.30

-0.36

-0.37

-0.60

-0.40
-0.50
-0.60
-0.70

Series1

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.10

-0.18

0.25

0.03

-0.60

-0.36

-0.37

Interpretation
We can see from the above chart that the script generated positive cumulative abnormal return on
announcement date. But on effective date a huge negative cumulative abnormal return. But overall
abnormal return generated from the project is negative. Negative abnormal return is not in the
interest of the investors. But the price effect is positive.

61

Dabur India Ltd

Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

2.39%
1.49%
0.95%
0.02%
1.12%
3.76%
3.64%
0.05%

Abnormal Return (Volume):

AD-30 TO
AD-1

No

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

CUM. AB

1639089.10 1860744.93 559583.56 11787492.44 58671.56 869090.49 1932615.34

30.00

10.00

1.00

DAYS
AVE.DAILY
AB (1/2)

54636.30

186074.49

559583.56 196458.21

AVE.VOL.

AB/AVE (3/4)

60.00

1.00

10.00

58671.56 86909.05

30.00
64420.51
84381.44

0.65

2.21

6.63

2.33

0.70

1.03

0.76

62

Dabur India Ltd.

Cum.AB Return

4.00%
3.50%

3.76%

3.64%

2.50%

2.39%

2.00%
1.49%
1.50%

1.12%

0.95%
1.00%
0.50%
0.02%
0.00%
AD-30 TO AD-10 TO
AD-01
AD-1
Series1 2.39%
1.49%

AD
0.95%

AD+1ED-1
0.02%

ED
1.12%

ED+1ED+10
3.76%

ED+1ED+30
3.64%

Dabur India Ltd.

Price Effect
12.00%
10.00%
% Cum.AB.Return

%Cum.AB Return

3.00%

8.00%
6.00%
4.00%
2.00%
0.00%

Series1

-2.00%
-4.00%

AD
30

AD
- AD
10

ED

Series1
Time Period

ED
+1
0

ED
+3
0

63

Interpretation
We can see from the above chart that in the beginning the script generated positive cumulative
abnormal return. But in the period between before AD 30 to AD 10 it generated negative
cumulative abnormal return. On announcement date it again fell down till the effective date.
After that it again rose and generated positive cumulative abnormal return. Overall return

Ratio of AB Volume to Ave. Volume

generated from the script is positive so it is good script to invest in.

Dabur India Ltd.

Volume Effect
7.00
6.00
5.00
4.00
6.63

3.00
2.00

0.00

Series1

2.33

2.21

1.00
0.65

0.70

1.03

0.76

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.65

2.21

6.63

2.33

0.70

1.03

0.76

Interpretation
From the above chart we can observe that the script generated maximum cumulative abnormal
return on announcement date. One of the reasons for such a drastic rise in cumulative abnormal
volume might be that lots of intraday trading might have taken place on that day. But after
announcement it began to reduce and get normalized over the event time period. However
overall the script generated positive cumulative abnormal return. This is good on the part of
investors. It is good script to invest in.

64

IT SECTOR
TCS Ltd
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-19.47%
-13.23%
-0.92%
-10.31%
-51.54%
2.97%
10.37%
-0.22%

Abnormal Return (Volume):

No
CUM. AB
1
DAYS
2
AVE.DAILY
AB (1/2)
3
AVE.VOL.
4
AB/AVE (3/4)
5

AD-30
TO AD-1
637265.67
30.00

AD-10
TO AD-1 AD
691224.33 768359.67
10.00
1.00

AD+1 TO
ED-1
ED
6188982.67 211483.67
55.00
1.00

21242.19

69122.43

768359.67 112526.96

211483.67 148726.83

0.09

0.31

3.44

0.95

0.50

ED+1 TO
ED+10
1487268.33
10.00

0.66

ED+1 TO
ED+30
4501477.67
30.00
150049.26
223657.33
0.67

65

TCS
%Cum .AB Return

20.00%

2.97%
-0.92%

0.00%
-20.00%

-19.47%

10.37%

-10.31%

-13.23%

-40.00%

-51.54%

Series1

-60.00%
AD-30
TO
AD-01
Series1 -19.47

AD-10
TO
AD-1
-13.23

AD

AD+1ED-1

ED

ED+1ED+10

ED+1ED+30

-0.92%

-10.31

-51.54

2.97%

10.37%

Time Period

10.00%

TCS
Price Effect

0.00%

% CUM. AB RETURN

-10.00%
-20.00%
-30.00%
-40.00%
-50.00%
-60.00%
-70.00%

Series1

-80.00%
-90.00%

AD
30

Series1

AD
10

AD

ED

TIME PERIOD

ED
+1
0

66

Interpretation
We can see that before the Announcement Date of Dividend, there was a big negative
Cumulative Abnormal Return. The return is somewhat better on the Announcement Date. But
the period between the day after the Announcement Date and a day before the Ex-dividend date,
there was a negative return. But on the Ex-dividend date the script reached at the bottom,
generating a negative Cumulative Abnormal Return of 51.54%. This negative return is due to the
heavy selling on the Ex-dividend date. After the ex-dividend date, the script has generated a

Ratio of AB Volume to Ave. Volume

return in positive. The return has increased subsequently

TCS
Volume Effect
4.00
3.50
3.00
2.50
2.00
3.44

1.50
1.00

0.50
0.00

Series1

0.09
AD-30
TO AD-1

0.31
AD-10
TO AD-1

0.09

0.31

0.50

0.95

0.66

0.67

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

3.44

0.50

0.95

0.66

0.67

Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement Date.
This could be due to huge selling pressure on the Announcement Date. The Absolute volume
rises gradually before the Announcement Date and reaches on a high peak on the Announcement
Date. After the Announcement of Dividend, the Absolute volume falls down slowly. This
indicates that on the Announcement Date, there must have been some adverse impact on the
investors so that the volume had been shot up. In all, we can see that there exist abnormality in
the volume due to poor return generated by the script.

67

Infosys Ltd.
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

11.95%
-14.46%
6.03%
-24.56%
-1.95%
-5.09%
-8.16%
-0.21%

Abnormal Return (Volume):

No
1
2
3
4
5

AD-30
TO AD-1
237499.68
30.00

CUM. AB
DAYS
AVE.DAILY
AB (1/2)
-7916.66
AVE.VOL.
AB/AVE (3/4) -0.04

AD-10
TO AD-1
226313.76
10.00
-22631.38

AD
142094.39
1.00
142094.39

-0.10

-0.63

AD+1 TO
ED-1
343275.42
49.00
-7005.62

ED
116541.39
1.00
116541.39

-0.03

-0.52

ED+1 TO
ED+10
866006.16
10.00

ED+1 TO
ED+30
1986191.08
30.00

-86600.62

-66206.37
225166.39
-0.29

-0.38

68

Infosys Ltd

%Cum .AB Return

20.00%
10.00%
0.00%
-10.00%
-20.00%

Series1

-30.00%

AD-30
TO
AD-01
Series1 11.95%

AD-10
TO
AD-1
-14.46

AD

AD+1ED-1

ED

ED+1ED+10

ED+1ED+30

6.03%

-24.56

-1.95%

-5.09%

-8.16%

Infosys Ltd
Price Effect
% Cum. AB. Return

25.00%
20.00%
15.00%
10.00%

Series1

5.00%
0.00%

AD
30

Series1

AD
10

AD

ED

ED
+1
0

ED
+3
0

69

Interpretation
We can see that before the Announcement Date of Dividend, there was a big positive Cumulative
Abnormal Return. The return has somewhat worsened on the Announcement Date. The return
has turned negative on the Announcement date. But the situation after the Announcement date
has been somewhat good till the ex-dividend date. But on the ex-dividend date, the return has
also worsened. But then after, the returns have reached its peak. So this is a good script to invest

Ratio of AB Volume to Ave. Volume

in.

Infosys Ltd.
Volume Effect

0.00

-0.10

-0.03
-0.17

-0.20
-0.50

-0.36

-0.36

-0.48

-0.30

-0.61

-0.40
-0.50
-0.60

-0.70

Series1

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.17

-0.50

-0.48

-0.03

-0.61

-0.36

-0.36

Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement Date.
This could be due to huge selling pressure on the Announcement Date. The script has generated
a negative return prior to the Announcement Date, but it became more negative on the
Announcement Date. The script generated negative returns during the entire period of study
except on the ex-dividend date.

70

Wipro Ltd
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-11.30%
-8.01%
3.61%
-14.97%
-2.43%
5.38%
13.34%
-0.09%

Abnormal Return (Volume):

No
1
2
3
4
5

CUM. AB
DAYS
AVE.DAILY
AB (1/2)
AVE.VOL.
AB/AVE (3/4)

AD-30
TO
AD-1
6013.45
30.00

AD-10
TO AD-1

AD

AD+1 TO
ED-1

-200.45

ED
945322.95 684291.66 4840899.61 112800.34
10.00
1.00
67.00
1.00
94532.29 684291.66 72252.23
112800.34

0.00

0.40

2.87

0.30

-0.47

ED+1 TO
ED+10
1058515.74
10.00

ED+1 TO
ED+30

-105851.57

24316.68
238753.34
0.10

-0.44

729500.47
30.00

71

WIPRO Ltd
13.34%

%Cum .AB Return

15.00%
10.00%

5.38%

3.61%

5.00%
0.00%

-2.43%

-5.00%
-10.00%

-8.01%
-11.30%

-14.97%

-15.00%
AD-30
TO AD01
Series1 -11.30%

AD-10
TO AD1
-8.01%

AD

AD+1-E
D-1

ED

ED+1-E
D+10

ED+1-E
D+30

3.61%

-14.97%

-2.43%

5.38%

13.34%

Time Period

15.00%

WIPRO Ltd.
Price Effect

10.00%
% CUM. AB RETURN

5.00%
0.00%
-5.00%
-10.00%
-15.00%
-20.00%
-25.00%
-30.00%

Series1
AD
30

Series1

AD
10

AD

ED
TIME PERIOD

72

Interpretation
We can see that before the Announcement date of dividend, there was a big negative Cumulative
Abnormal Return. The return is somewhat better on the Announcement Date. But immediately
after the announcement date the returns had fallen sharply. This indicates that on the
announcement date, there must have been some adverse impact on the investors because of
which the returns have fallen down. The situation has improved on the ex-dividend date and

Ratio of AB Volume to Ave. Volume

thereafter. So it is a good script to invest in.

WIPRO
Volume Effect

3.50
3.00
2.50
2.00

1.50

2.87

1.00
0.50
0.00

0.00

0.40

0.30

-0.44 0.10

-0.47

-0.50
-1.00

Series1

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.00

0.40

2.87

0.30

-0.47

-0.44

0.10

Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement Date.
This could be due to huge selling pressure on the Announcement Date. The Absolute volume
rises gradually before the Announcement Date and reaches on a high peak on the Announcement
Date. After the Announcement of Dividend, the Absolute volume falls down slowly. This
indicates that on the Announcement Date, there must have been some adverse impact on the
investors so that the volume had been shot up. In all, we can see that there exist abnormality in
the volume due to poor return generated by the script.

73

OIL AND GAS SECTOR

ONGC
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

1.60%
-0.96%
-1.82%
12.87%
-0.22%
-4.46%
3.92%
0.13%

Abnormal Return (Volume):

No
1
2
3
4
5

CUM. AB
DAYS
AVE.DAILY
AB (1/2)
AVE.VOL.
AB/AVE (3/4)

AD-30
TO AD-1
640881.16
30.00

AD-10
TO AD-1 AD
244134.08 62220.86
10.00
1.00

AD+1 TO
ED-1
1913508.43
75.00

-21362.71

-24413.41

62220.86 -25513.45

ED
265278.14
1.00
265278.14

-0.05

-0.06

0.15

-0.63

-0.06

ED+1 TO
ED+10
1017406.81
10.00

ED+1 TO
ED+30
3236460.43
30.00

-101740.68

-107882.01
423018.14
-0.26

-0.24

74

ONGC
%Cum .AB Return

15.00%

12.87%

10.00%
3.92%

5.00%

1.60%

0.00%

-0.96%

-0.22%
-1.82%

-4.46%

-5.00%
AD-30
TO AD01
Series1 1.60%

AD-10
TO
AD-1
-0.96%

AD

AD+1ED-1

ED

ED+1ED+10

ED+1ED+30

-1.82%

12.87%

-0.22%

-4.46%

3.92%

Time Period

ONGC Ltd.
Price Effect

% Cum.AB. Return

20.00%
15.00%
10.00%

5.00%
Series1

0.00%
-5.00%

AD
30

AD
10

ED
ED +1
0

AD

Series1
Time Period

ED
+3
0

75

Interpretation
We can see that before the Announcement date of dividend, there was a big negative Cumulative
Abnormal Return. The return is further worsened on the Announcement Date. But after the
Announcement date, the returns have shot up sharply. This indicates that there has been some
positive impact on the investors on the announcement date. But the returns have turned negative

Ratio of AB Volume to Ave. Volume

on the ex-dividend date and thereafter.

ONGC
Volume Effect

0.20

0.10
0.00

0.15
-0.05

-0.06

-0.06

-0.10

-0.24

-0.26

-0.20
-0.30

-0.63

-0.40
-0.50
-0.60
-0.70

Series1

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.05

-0.06

0.15

-0.06

-0.63

-0.24

-0.26

Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement Date.
This could be due to huge selling pressure on the Announcement Date. The Absolute volume
rises gradually before the Announcement Date and reaches on a high peak on the Announcement
Date. After the Announcement of Dividend, the Absolute volume falls down slowly. This
indicates that on the Announcement Date, there must have been some adverse impact on the
investors so that the volume had been shot up. In all, we can see that there exist abnormality in
the volume due to poor return generated by the script.

76

GAIL Ltd.
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-10.08%
-8.89%
1.45%
13.81%
-0.26%
0.87%
0.41%
0.04%

Abnormal Return (Volume):

AD-30 TO
AD-1

No
1
2
3
4
5

CUM. AB
DAYS
AVE.DAILY
AB (1/2)
AVE.VOL.
AB/AVE (3/4)

AD-10
TO AD-1

AD+1 TO
ED-1

ED
1710199.38 246481.19 378046.65 4965535.14 244895.35
30.00
10.00
1.00
64.00
1.00
57006.65
24648.12 378046.65 77586.49
244895.35
0.17

0.07

AD

1.10

0.23

-0.71

ED+1 TO
ED+10
564680.46
10.00

ED+1 TO
ED+30

-56468.05

28726.58
344464.35
0.08

-0.16

861797.27
30.00

77

GAIL INDIA Ltd.

13.81%

15.00%

%Cum .AB Return

10.00%
5.00%

1.45%

0.87%

0.00%

0.41%

-0.26%

-5.00%
-10.08%

-10.00%

-8.89%

-15.00%
AD-30
TO
AD-01
Series1 -10.08

AD-10
TO
AD-1
-8.89%

AD

1.45%

AD+1ED-1

ED

13.81% -0.26%

ED+1ED+10

ED+1ED+30

0.87%

0.41%

Time Period

GAIL INDIA Ltd.

%Cum.AB. Return

15.00%
10.00%
5.00%
0.00%
-5.00%

Series1

-10.00%
-15.00%

AD
30

AD
- AD
10

ED
ED +1
0

Series1

Time Period

ED
+3
0

78

Interpretation
We can see that before the Announcement date of dividend, there was a big negative Cumulative
Abnormal Return. The return is somewhat better on the Announcement Date. But immediately
after the announcement date the returns had shot up sharply. This indicates that on the
announcement date, there must have been some positive impact on the investors because of
which the returns have increased. After the ex-dividend date, there has been fluctuation in the

Ratio of AB Volume to Ave. Volume

returns.

1.20
1.00
0.80
0.60
0.40
0.20
0.00
-0.20
-0.40
-0.60
-0.80
-1.00

Series1

GAIL
Volume Effect
1.10
0.17

0.23

0.07

-0.16
-0.71

0.08

AD-30
TO AD-1

AD-10
TO AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.17

0.07

1.10

0.23

-0.71

-0.16

0.08

Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement Date.
This could be due to huge selling pressure on the Announcement Date. The Absolute volume
rises gradually before the Announcement Date and reaches on a high peak on the Announcement
Date. After the Announcement of Dividend, the Absolute volume falls down slowly. This
indicates that on the Announcement Date, there must have been some adverse impact on the
investors so that the volume had been shot up. In all, we can see that there exist abnormality in
the volume due to poor return generated by the script. The situation has improved after the exdividend date i.e. from the day after the ex-dividend date till the month after the ex-dividend date

79

Aban Off Shore

Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-16.82%
-0.42%
-2.85%
8.01%
-2.52%
-13.20%
-26.19%
-0.36%

Abnormal Return (Volume):

No
1
2
3
4
5

AD-30
TO AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1
966687.24 1732845.12 283586.39 351260.85
30.00
10.00
1.00
34.00

CUM. AB
DAYS
AVE.DAILY
AB (1/2)
32222.91
AVE.VOL.
AB/AVE (3/4) 0.02

173284.51

283586.39 -10331.20

ED
631461.61
1.00
631461.61

0.13

0.22

-0.49

-0.01

ED+1 TO
ED+10
4343231.88
10.00

ED+1 TO
ED+30
12981201.59
30.00

-434323.19

-432706.72
1297227.61
-0.33

-0.33

80

ABAN OFFSHORE
10.00%

%Cum .AB Return

5.00%
0.00%
-5.00%

-10.00%
-15.00%
-20.00%
-25.00%
-30.00%
AD-30
TO AD01
Series1 -16.82%

AD-10
TO
AD-1
-0.42%

5.00%

AD+1-E
D-1

-2.85%
8.01%
Time Period

ED

-2.52%

ED+1ED+10

ED+1ED+30

-13.20% -26.19%

ABAN OFFSHORE
Price Effect

0.00%
% CUM. AB RETURN

AD

-5.00%
-10.00%

-15.00%
-20.00%
-25.00%
-30.00%
-35.00%

-40.00%
-45.00%

AD
30

AD
10

AD

ED
TIME PERIOD

ED
+1
0

Series1

Interpretation
We can see that before the Announcement date of dividend, there was a big negative Cumulative
Abnormal Return. The return is further worsened on the Announcement Date. But after the

81

Announcement date, the returns have shot up sharply. This indicates that there has been some
positive impact on the investors on the announcement date. But the returns have turned negative

Ratio of AB Volume to Ave. Volume

on the ex-dividend date and thereafter.

ABAN OFFSHORE
Volume Effect
0.30
0.20
0.10
0.00

0.02

0.13

0.22
-0.01

-0.10
-0.49 -0.33

-0.20

-0.33

-0.30
-0.40
-0.50
-0.60

Series1

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.02

0.13

0.22

-0.01

-0.49

-0.33

-0.33

Interpretation
We can see that before the Announcement date of dividend, there was a big negative Cumulative
Abnormal Return. The return is further worsened on the Announcement Date. But after the
Announcement date, the returns have shot up sharply. This indicates that there has been some
positive impact on the investors on the announcement date. But the returns have turned negative
on the ex-dividend date and thereafter.

82

POWER SECTOR
NTPC Ltd
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

5.15%
6.18%
1.54%
-4.05%
-0.62%
-1.27%
-0.16%
0.01%

Abnormal Return (Volume):

No
1
2
3
4
5

CUM. AB
DAYS
AVE.DAILY
AB (1/2)
AVE.VOL.
AB/AVE
(3/4)

AD-30 TO
AD-1
8566194.56
30.00

AD-10 TO
AD-1
AD
1375448.11 1171726.11
10.00
1.00

AD+1 TO
ED-1
9400108.89
98.00

-285539.82

-137544.81

1171726.11 -95919.48

ED
341898.89
1.00
341898.89

-0.18

-0.09

0.73

-0.21

-0.06

ED+1 TO
ED+10
7952860.22
10.00

ED+1 TO
ED+30
19805663.89
30.00

-795286.02

-660188.80
1599144.89

-0.50

-0.41

83

NTPC
8.00%

%Cum .AB Return

6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%

Series1

-6.00%
AD-30
TO
AD-01
Series1 5.15%

AD-10
TO
AD-1
6.18%

AD

AD+1ED-1

ED

ED+1ED+10

ED+1ED+30

1.54%

-4.05%

-0.62%

-1.27%

-0.16%

% Cum.AB. Return

Time Period

12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%
-6.00%

NTPC Ltd
Price Effect

Series1

AD
30

Series1

AD
- AD
10

ED
ED +1
0
Time Period

ED
+3
0

84

Interpretation
We can see that before the Announcement Date of Dividend, there was a big positive Cumulative
Abnormal Return. The return has somewhat worsened on the Announcement Date. The returns
after the Announcement date have been negative throughout which indicates that there has been

Ratio of AB Volume to Ave. Volume

some adverse impact on the investors on the Announcement date.

NTPC
Volume Effect
0.80
0.60
0.40

0.73

0.20
0.00

-0.18

-0.20

-0.06

-0.09

-0.21
-0.50

-0.41

-0.40
-0.60

AD-30 TO
AD-1

AD-10 TO
AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

-0.18

-0.09

0.73

-0.06

-0.21

-0.50

-0.41

Series1

Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement Date.
This could be due to huge selling pressure on the Announcement Date. The Absolute volume
rises gradually before the Announcement Date and reaches on a high peak on the Announcement
Date. After the Announcement of Dividend, the Absolute volume falls down slowly. This
indicates that on the Announcement Date, there must have been some adverse impact on the
investors so that the volume had been shot up. In all, we can see that there exist abnormality in
the volume due to poor return generated by the script.

85

Power Grid Ltd.

Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

15.32%
0.59%
-0.05%
0.44%
0.17%
-0.20%
1.02%
0.13%

Abnormal Return (Volume)

No
1
2
3
4
5

AD-30 TO
AD-1

AD-10 TO
AD-1

AD
9775476.21 1493536.34 411865.24
CUM. AB
30.00
10.00
1.00
DAYS
AVE.DAILY
325849.21 149353.63 411865.24
AB (1/2)
AVE.VOL.
AB/AVE
0.24
0.11
-0.30
(3/4)

AD+1 TO
ED-1
5564769.13
63.00
-88329.67

ED
1036178.24
1.00
1036178.24

-0.07

-0.76

ED+1 TO
ED+10
3478473.42
10.00

ED+1 TO
ED+30
14519236.97
30.00

-347847.34

-483974.57
1356979.24

-0.26

-0.36

86

%Cum .AB Return

POWERGRID
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%

15.32%

0.59% -0.05% 0.44% 0.17% -0.20% 1.02%

ADAD
AD+
ED
ED+1
AD-1
ED+1
30
10 TO
-ED+
TO
ED-1
ED+1
AD-1
30
AD0
01
Series1 15.32 0.59% -0.05 0.44% 0.17% -0.20 1.02%
Time Period

Power Grid Ltd.

Price Effect
25.00%

%Cum.AB. Return

20.00%
15.00%
10.00%
5.00%
0.00%

AD
30

Series1

AD
- AD
10

ED
ED +1
0
Time Period

ED
+3
0

87

Interpretation
We can see that before the announcement date of dividend there was a big positive Cumulative
Abnormal Return. But it falls substantially on the announcement date. This negative return is due
to heavy selling on the announcement day. The situation has improved thereafter till the ex-

Ratio of AB Volume to Ave. Volume

dividend date. After the ex-dividend date, the returns have reduced.

POWERGRID
Volume Effect
0.40
0.20
0.00
-0.20
-0.40
-0.60
-0.80
-1.00

Series1

0.24

0.11
-0.30

-0.07
-0.76

-0.26

-0.36

AD-30
TO AD-1

AD-10
TO AD-1

AD

AD+1 TO
ED-1

ED

ED+1 TO
ED+10

ED+1 TO
ED+30

0.24

0.11

-0.30

-0.07

-0.76

-0.26

-0.36

Interpretation
The period of a month before the Announcement date had a positive absolute volume. But then
after, the absolute volume turned negative. Thus, it is not advisable to invest in such a script.

88

Tata Ltd.
Abnormal Return (Price): (In Percentage)
Time Window
AD-30 TO AD-01
AD-10 TO AD-1
AD
AD+1-ED-1
ED
ED+1-ED+10
ED+1-ED+30
Mean Daily Ab. Return

Cum. Ab. Volume

-0.84%
-1.29%
0.10%
11.84%
-2.66%
0.10%
12.34%
0.18%

Abnormal Return (Volume):

No
1
2
3
4
5

CUM. AB
DAYS
AVE.DAILY
AB (1/2)
AVE.VOL.
AB/AVE (3/4)

AD-30
TO AD-1
463004.42
30.00

AD-10
TO AD-1
589144.33
10.00

-15433.48

-58914.43

AD
75328.42
1.00
75328.42

-0.11

-0.41

-0.52

AD+1 TO
ED-1
2003953.33
44.00
-45544.39

ED
88426.42
1.00
88426.42

-0.32

-0.61

ED+1 TO
ED+10
335100.33
10.00

ED+1 TO
ED+30
1173314.58
30.00

-33510.03

-39110.49
144315.42
-0.27

-0.23

89

TATA Ltd.
14.00%

11.84%

12.34%

10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%

0.10%
-0.84%

0.10%

-1.29%
-2.66%

-4.00%

Series1

AD-30
TO
AD-01
-0.84%

AD-10
TO AD1
-1.29%

AD

AD+1-E
D-1

ED

ED+1ED+10

ED+1-E
D+30

0.10%

11.84%

-2.66%

0.10%

12.34%

Time Period

TATA Ltd.
Price Effect

25.00%
20.00%
%Cum. AB. Return

%Cum .AB Return

12.00%

15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
-15.00%

AD
30

AD
10

AD

ED

Series1
Time Period

ED
+1
0

ED
+3
0

90

Interpretation
We can see that before the Announcement date of dividend, there was a big negative Cumulative
Abnormal Return. The return is somewhat better on the Announcement Date. But immediately
after the announcement date the returns had shot up sharply. This indicates that on the
announcement date, there must have been some positive impact on the investors because of
which the returns have increased. The returns were negative on the ex-dividend date but

Ratio of AB Volume to Ave. Volume

thereafter the returns have increased substantially.

0.00
-0.10
-0.20
-0.30
-0.40
-0.50
-0.60
-0.70

TATA
Volume Effect
-0.11
-0.41

AD-30
AD-10
TO AD-1 TO AD-1
Series1

-0.11

-0.41

-0.23

-0.32
-0.52

-0.27

-0.61

AD

AD+1
TO ED-1

ED

ED+1
TO
ED+10

ED+1
TO
ED+30

-0.52

-0.32

-0.61

-0.23

-0.27

Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement Date.
This could be due to huge selling pressure on the Announcement Date. The Absolute volume
rises gradually before the Announcement Date and reaches on a high peak on the Announcement
Date. However, after the Announcement of Dividend, the Absolute volume increases till the exdividend date. But after the ex-dividend date, it again starts falling.

91

92

Mean Cumulative Abnormal Return

TIME WINDOW
AD-30 TO AD-01
AD-10 TO AD-01
AD
AD+01 TO ED-01
ED
ED+01 TO ED+10
ED+01 TO ED+30

Mean Cumulative Abnormal Return

-1.36%
-2.91%
0.43%
-6.23%
-2.58%
-10.75%
-9.75%

MCAR

2.00%

0.43%

Mean Cum.AB. Return

0.00%
-1.36%
-2.00%

-2.58%

-2.91%
-6.23%

-4.00%
-10.75%

-6.00%

-9.75%

-8.00%
-10.00%
-12.00%

AD-30 AD-10
TO ADTO
01
AD-01

AD

AD+01
TO ED01

ED

ED+01 ED+01
TO
TO
ED+10 ED+30

Mean Cumulative
-1.36% -2.91% 0.43% -6.23% -2.58% -10.75% -9.75%
Abnormal Return

Interpretation
Mean cumulative Abnormal Return shows the average abnormal return for a given window
among the firms. We can see that it is low before the announcement date. As dividend is
announced cumulative abnormal return rises, this shows that abnormality is created due to
declaration of dividend. So we can consider that on the basis of analysis of above 30 companies
that on average on announcement date maximum price rise is seen because declaration of
dividend brings about positive impression in the mind of investors towards the company. More

93

over many intraday traders also participate for short term gain during the entire day. This yields
positive cumulative abnormal return for the average companies. In addition if we think rationally
this is the normal and general tendency among the investors. There is a big negative cumulative
abnormal return between the announcement date and effective date. The reason is that there is
general tendency among investors to wait till the effective date to realize the dividend income.
Due to this number of transaction taking place reduces. This brings about negative cumulative
abnormal effect during this period. This is the normal market scenario. And we can see that
market runs accordingly. Even after the effective date the return goes on reducing. It means big
supply pressure is created by dividend effect which brought the price down and so the abnormal
value also comes down. The reason is that after realizing the dividend income the share holders
want to sell of the shares but at that time other investors are not ready to purchase shares. So
This also shows the general tendency of investors of buying shares after the dividend is
announced and selling out on the ex-dividend date

Mean Average Abnormal Return

TIME WINDOW
AD-30 TO AD-01
AD-10 TO AD-01
AD
AD+01 TO ED-01
ED
ED+01 TO ED+10
ED+01 TO ED+30

Mean average Abnormal Return

-0.20%
0.07%
0.43%
-0.10%
-2.58%
0.16%
0.12%

94
1.00%

MAAR

0.50%
0.00%

-0.20%

0.07%

0.43%

0.16%

-0.10%

0.12%

-0.50%
-1.00%

-2.58%

-1.50%
-2.00%

Series1

-2.50%
-3.00%

AD-30
TO
AD-01

AD-10
TO
AD-01

AD

Series1 -0.20%

0.07%

0.43%

AD+01
TO ED01

ED

-0.10% -2.58%

ED+01
TO
ED+10

ED+01
TO
ED+30

0.16%

0.12%

Interpretation
Mean Average Abnormal Return indicates the daily average return in a given window among the
firms. We can see in the above chart that the average abnormal return is highest positive on
announcement date. Gradually from the period AD to ED it again goes on decreasing. This is
because of higher participation among investors in market. But in long run that is after effective
date it again start rising. This is again because of huge buying pressure that is generated by
dividend effect. Thus it is better for any new investor to invest in company as soon as divided is
announced and should sell of the shares immediately after the dividend is paid out.
Mean of Average Daily Cumulative Abnormal Volume
TIME WINDOW
AD-30 TO AD-01
AD-10 TO AD-01
AD
AD+01 TO ED-01
ED
ED+01 TO ED+10
ED+01 TO ED+30

MADCAV
556231.972
-160613.327
217554.3427
1087939.343
-167032.854
-846716.415
-2465219.33

95

MADCAV
Average Daily Abmormal Volume

1500000
1000000
500000

1087939.343
556231.972
217554.3427

0
-160613.3267

-500000

-167032.854

-1000000

-846716.4152

-1500000
-2000000
-2500000
-3000000

-2465219.327
AD-30 TO
AD-01

AD-10 TO
AD-01

AD

AD+01 TO
ED-01

ED

MADCAV 556231.97 -160613.3 217554.34 1087939.3 -167032.8

ED+01 TO
ED+10

ED+01 TO
ED+30

-846716.4

-2465219.

Time Period

Interpretation
MADCAV indicates the average daily cumulative abnormal volume among the firms. As we can
see form the above chart that maximum trading takes place between announcement date to
effective date time period. Before the announcement date however, mainly before three months
to one month maximum trading take place. This indicates that there is good supply of shares and
at the same time new and small participation might also take place. After effective date the
abnormal return drastically reduces due to non participation of large investors. When we see
such huge abnormal effect in comparison of price effect we can clearly say that there is huge
abnormal trading taking place after the dividend. But the supply pressure is so high that it leads
to decrease in price of shares resulting into negative cumulative abnormal return.

Mean Ratio of AB. Volume To Avg Volume

TIME WINDOW
AD-30 TO AD-01
AD-10 TO AD-01
AD
AD+01 TO ED-01
ED
ED+01 TO ED+10
ED+01 TO ED+30

MRABAV
0.01
0.04
0.70
0.00
-0.24
0.01
0.21

96

Ratio of AB. Volume to Avg. Volume

0.80

Mean Ratio0.70
of AB Volume to Avg Volume

0.60
0.40
0.21
0.20
0.04
0.00

0.01

Series1

-0.20
-0.40

Series1

0.01

0.00

-0.24
AD-30 TO AD-10 TO
AD-01
AD-01
0.01

0.04

AD

AD+01 TO
ED-01

ED

0.70

0.00

-0.24

ED+01 TO ED+01 TO
ED+10
ED+30
0.01

0.21

Interpretation
This ratio indicates how much times the abnormal volume traded greater than the average
volume traded. During the period from AD-30 to AD the script generated positive cumulative
abnormal volume. We can see that the ratio is very less before one month of announcement date.
This is because there is huge liquidity problem before announcement date in shares. On
announcement date ratio have reached to 0.70 which means that lot many investors have
participate to gain long term as well as short term gains. Intra traders participate on this day to
gain short term profits arising from price fluctuations. This leads to very high positive
cumulative abnormal return. Between announcement date and ex-dividend date the ratio is very
low. This is because after dividend is announced people prefer dividend to be paid and price to
be come down in more tradable range. So in order to earn the dividend income the investors
retain their shares upto effective date. Thus no transactions takes place as there are buyers but no
sellers. This brings about negative impact on volume of transactions thereby leading to negative
cumulative abnormal return. After effective date the ratio is seem to be rising which means that
investors have realized the dividend income and now they want to sell of their shares. Buying
pressure was already there during the period between AD to ED. But now after the effective date
selling pressure have also generated. This neutralizes the effect and thereby generate positive
cumulative abnormal volume as more number of takes place. Thus the market behaves in a
rational manner.

97

98

Learning from the project

The dividend news in the market creates abnormality in the return and volume of the script,
so that investor should not treat that markets are always efficient.
Investors should behave rationally while taking their decision regarding investment in any
script. They should wait for the abnormality in the script to be removed before investing in
it.
For long term investor, dividend decision of a company should not be a major influencing
factor in their investment decision.
Investors should consider the fundamentals of the company before investing in it and should
consider the actual performance of the company over the period of time.
Dividend as a corporate event affects the share prices of the firm for a specific time period
only. As dividend event gets over the abnormality in the script is removed and the stock
prices start reflecting its actual value. So investors should not get lured by the dividends.
Directors should adopt a dividend policy which gives consideration to the interests of each
of the group comprising a substantial proportion of shareholders.
A definite dividend policy, followed for a long period in the past trends to create clientele
effect. That is it attracts those investors that consider the dividend policy in accord with their
investment requirements. If the company suddenly changes its dividend policy, it may work
to the detriment to those shareholders as they may have to switch to other companies to
fulfil their needs. Thus an established dividend policy should be changed only after having
an analyzed its probable effect on existing shareholders. It should be changed slowly and
not abruptly.
A huge positive abnormal return before the announce date of dividend indicates the sins of
leakage of any insider information. So the investor must check room for such insider
information before investing in that company. This will help them to protect themselves
from future losses.

99

Conclusions
This project examines the relation between dividend decision and its impact on the
market price of the stock.
The information about the corporate dividend policies brings abnormality in the market
and market does perform efficiently.
The movements in stock prices and trading volume are influenced by the flow of new
information into the market.
The dividend effect are reflected into the market price of the company within the time
period of few days before the announce date to few days after the ex-dividend date.
Insider information plays vital role in the fluctuations of stock price and trading volume
of and company which has declared dividend.
We can conclude from this project that there is linear relationship between dividend
decision and market price of the company for a limited duration. Thereafter the markets
start behaving efficiently and absorb all the available information in the market.

100