Announcement Effect of Dividend on Share Prices of Indian Automobile Sector: An Event Study Approach

Abstract

The present attempted to test the efficiency of Indian capital market and share price response with respect to corporate final dividend announcement made by Auto mobile companies. The sample is made up of 49 final dividend announcements made during a ten-year period, from 2013 to 2024, by 6 Auto mobile industries namely Bajaj Auto, Eicher Motors, Hero MotoCorp, Mahindra & Mahindra, Maruti Suzuki and Tata Motors listed on the National Stock Exchange (NSE). The NSE website and Money Control provided all of the dividend announcement data. To calculate the residual, the NSE Nifty 50 index is utilized as a market proxy. The standard event study methodology has been adapted and statistical significance was tested by using t-test.   According to this study, the AAR is positive for 67 per cent over 21 daywindows period. Interestingly, the AAR starts reacts positively before the dividend announcement and continuous positively surrounding days after the dividend announcement (except day +4, +9 and +10). This indicates that the market has over-reacted earlier and then corrected itself during subsequent days thereby highlighting the efficiency of the market. On the other hand, the CAAR shows 100 per cent positive observation over the 21-day window period and found significant on event day’0’ and surrounding days after the dividend announcement. It can be observed that AAR (0.009622) and CAAR (0.023026) found increasing and positive on the announcement day ‘0’. The significant market reaction of dividend announcement evidenced that market efficiency of dividend signaling hypothesis.