Corporate Dividend Policy

[AN EMPIRICAL STUDY OF CORPORATE DIVIDEND POLICY]

CHAPTER -1

DIVIEND POLICY- THE MECHANISAM

1 N R Institute of Business Management


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.

Cooperatives, on the other hand, allocate dividends according to members' activity, so their

dividends are often considered to be a pre-tax expense.

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 firm’s dividend policy. These include

The liquidity position of the firm – just because a firm has income doesn’t 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.

Internal Revenue Service Section 531 – Improper Accumulation of funds. This is

to prevent individuals from not paying dividends in order to avoid the personal

income taxes on the dividend payments.

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:

1) Pay a constant dollar amount each year regardless of earnings per share. This is what

most firms do.

2) Use a constant payout ratio (for example, 50% of EPS)

3) 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 stock’s price because it sends a signal to stockholders that

management’s 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).

Flotation costs encourage a company to retain earnings in order to minimize having to sell

additional stock in the future. As we saw in the cost of capital calculations, the flotation costs

make new equity more expensive than retained earnings.

Some companies pay no dividends. Why? Because they have good investment opportunities

and reinvest the earnings.

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). If this payment involves the issue of new shares, this is very

similar to a stock split in that it increases the total number of shares while lowering the price of

each share and does not change the market capitalization or the total value of the shares held.

Property dividends or dividends in specie (Latin for "in kind") are 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.


http://en.wikipedia.org/wiki/In_specie

http://en.wikipedia.org/wiki/Latin_language


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 company’s 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 ('with [including] 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 (typically 2 trading days before the record date for U.S. securities) 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


http://en.wikipedia.org/wiki/Ex-dividend_date

http://en.wikipedia.org/wiki/Public_company

http://en.wikipedia.org/wiki/Structured_finance


declaration of the dividend. The company does not take any explicit action to adjust its stock

price; in an efficient market, buyers and sellers will automatically price this in.

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 one of three 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:

1. 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.

2. Investors may view constant or steadily increasing dividends as more certain than a

fluctuating cash dividend payment.


http://en.wikipedia.org/wiki/Stockholder_of_Record

http://en.wikipedia.org/wiki/Book_closure

http://en.wikipedia.org/wiki/Book_closure


3. 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 a 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 emphasise 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 programmes. 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. It proposes that Dividend should not be distributed out of

capita, in any case. Likewise, contractual obligation should also be fulfilled, for example,

payment of dividend on preference shares in priority over ordinary dividend.

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 pay out 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. Thus control is an

influencing factor in framing the 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 (mostly

institutional lenders) put restrictions on the dividend distribution still such time their loan is

outstanding. Formal loan contracts generally provide a certain standard of liquidity and solvency

to be maintained. Management is bound to hour such restrictions and to limit the rate of dividend

payout.

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.



Chapter – 2 Research Methodology



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. They are:

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.

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. The managers are more concerned with dividend changes than on absolute

level. Finally, managers do not intend to reverse the change in dividends. He finds that

firms pay predictable and regular dividends to investors; whereas the earnings of

corporate firms could be erratic. This implies that shareholders prefer smoothened

dividend income.



Brealey (1992) poses the dividend policy decision as “What is the effect of change in

cash dividends, given the firm’s 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.

They attributed this decline to the changing characteristics of firms: “The decline in the

incidence of dividend payers is in part due to an increasing tilt of publicly traded firms

toward the characteristics- small size, low earnings, and high growth- of firms that

typically have never paid dividends.”

Objectives of the Study:

To explore the insight f a corporate event named “Dividend Policy” which drags lot of

attention and results into may drastic changes in the market valuaton of he firm.

To study the impact of ‘dividend’ on the price and volume before and after such vidend

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 2009.

Limited to BSE-500 companies only.

Sampling:

Sampling Technique : Judgmental sampling

Sampling Unit : One company of BSE-500

Sampling Size : 30 companies from BSE-500 index



Data Sources:

Secondary Data

Prowess software of CMIE

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 2009.

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.



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

To process further, we need to find out daily script return of each day in comparison with the

previous day’s closing price. As this sheet represents how we found out the daily script return

in percentage terms by taking previous day’s 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 day’s 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.



D. Find out the regression between script return and market return

After finding out the daily script and market return for the event period, the next step is to

find out the regression between script and market return. To find out the regression, we

selected the period of 3 months before the Announcement Date of the dividend to 1 month

before the Announcement of the dividend (AD-90 to AD-30). This is because we assume that

most of abnormality in trading can start at max 1 month before the dividend announcement

due to some insider leakage of information. Before that period, script tends to react in a

normal manner.



So in our research, that period would be the standard normal period which could be used to

find out expected return. As we can see in this window, the Y range indicates script return for

the above mentioned period and X range indicates market return for the above mentioned

period. Then using the MS Excel Regression analysis tool (which is there in the Tools menu),

we found out the regression analysis chart which is shown below. [To get the Regression

tool, go to Tools menu, then to Add Inn… and select Analytical Tool Pack, after that go to

tools menu again and you will find Data Analysis in the list, go into that and regression

option.]

Once we feed data in the above model, we could find out the summary output as mentioned

in this sheet. From the summary that we got, there are 3 things important for our research.

They are shown here: R-Square, Alpha and Beta. The explanation of each of the terms and

how to read that data is given below:



R-Square:

The R-Squared value shows how reliable the dependent variable on the independent variable

is. It varies between 0 and 1. An R-Squared value of 1 indicates perfect correlation with the

index. The higher the R-Square, the better correlation exists between the script return and

market return. So that leads to some of good decision making and helps in proper judgment

and interpretation. Generally, R-Square of more than 0.50 is considered to be good.



Y-Intercept (a) :(Alpha)

The ‘a’ is called the Y-intercept because its value is the point at which the regression line

crosses the Y-axis that is the vertical axis. It is also called Alpha.

Slope of line (b) :(Beta)

The ‘b’ is called the slope of the line. It represents how much each unit change of the

independent variable X changes the dependent variable Y. It is also called Beta of script in

comparison of market.

Both ‘a’ and ‘b’ are numerical constants because for any given straight line, their values do

not change.

E. Find out Expected Return

So from the above figures, we can frame a regression line for each of the script as follows:

Y= a+bX



Suppose we know that ‘a’ is 3 and ‘b’ is 2. Let us determine what Y would be for an X equal

to 5. When we substitute the values of a, b and x in the above equation, we find the

corresponding value of Y to be 13. As mentioned in the above regression line, we found out

the expected return for the event period (AD-30 to ED+30). The formula used can be seen in

this sheet.

F. Find out the abnormal return

The abnormal return for a given day can be found out by subtracting expected return for a

day (which is found by using regression line as shown above) from the actual return for a day

(which is found out in step B). This sheet represents the same thing. Positive abnormal return

indicate that how much positive effect is generated by the event among the investors. In the

same way, negative abnormal return indicate clearly the opposite scenario for the script. As

we can see in this sheet, the abnormal for is because the actual return on the

script is which is indeed very high than the expected return of for that day. This return

is for only one day. The real effect of such event can be seen by taking broader view and

seeing cumulative effect through a particular period.



G. Find out Cumulative abnormal return

As mentioned above, to study the long term and short term effect of the event, we have

divided the event period in different windows. So to check the cumulative effect of the

abnormal return in a given window can be found out by getting cumulative abnormal return

for that period. So we have found out the cumulative abnormal return for each window by

using the formula which can be seen in this sheet. The detail of cumulative abnormal return

for each script is shown in the next chapter.



H. Find out the Cumulative abnormal return for a given window

From the above sheet, we can see how to find out cumulative abnormal return for a given

window. As we can see that in window AD-30 to AD-1, the cumulative abnormal return is ,

so there is positive abnormality in return can be seen 1 month before the split was announced

but we can see in other window AD-10 to AD-1 that the cumulative abnormal return is large

negative and which indicates some kind of leakage in information must be done before

the dividend was actually announced. In the same way, we can observe cumulative abnormal

return (CAR) for different window.

In order to draw overall inferences for the event of interest, the abnormal return observations

are aggregated along the 2 dimensions- through time and across securities. The following

measures of abnormal performance are used:

Cumulative Abnormal Return (CAR): cumulative sum of stock i’s prediction error

(abnormal returns) over the window (t1,t2)

CARi(t1,t2)=1/T ARij



Average Abnormal Return (AAR): stock i’s cumulative abnormal return divided by

the number of days in the window (t1,t2)

AARi (t1,t2)= CARi (t1,t2)/ni (t1,t2)

Mean Cumulative Abnormal Return (MCAR): average of the cumulative abnormal

returns sample average of firm AARs. This measure of abnormal performance takes into

account the fact that the number of days in that window (t1,t2) may be different across firms

and therefore gives a greater weight to the ARs of firms for which this window is shorter. On

the contrary, MCAR gives same weight to every ARs. This implies that MAAR is more

powerful when the “abnormal behavior” of returns is concentrated in short window, while

MCAR is more powerful in detecting abnormal performance over long window.across

observations (firms); it is a measure of the abnormal performance over the event period,

MCAR (t1,t2)= 1/N CARi (t1,t2)

Mean Average Abnormal Return (MAAR):

MAAR (t1,t2)=1/N AARi (t1,t2)



Steps to find out Abnormal Volume Effect

A. Find out average daily volume

We found out the abnormal volume trading by using simple average and deviation of actual volume from the average volume. So to find out abnormal volume the very first step is to find out average volume. As we assume that there is normal trading takes place from the 3 months before the announcement date to the 1 month before the announcement date. So we took the average of that period using simple average formula as can be seen un this data sheet. The average we get is the daily average volume and it becomes the benchmark for our study and we can compare the actual volume with this average volume.



B. Find out abnormal volume

To find out abnormal volume trading we subtract average volume from the total volume for a day given. The abnormal volume can be positive of negative. But in real life the volume traded can’t be negative. Here negative abnormal volume indicates how much less volume trading takes place in comparison to expected volume traded.

C. Find out cumulative abnormal volume



As we have found in cumulative price effect in the same way we can found out the cumulative volume traded for a given time period. This sheet represents the same thing. Cumulative abnormal volume is useful as it indicate how much abnormality in volume can be seen in given window period or time period.

D. Find out cumulative abnormal volume for a given window

As already explain in the price effect, in the same way cumulative abnormal volume for a given window can be found out using the above mentioned formula. As we can see that there is huge abnormal volume trading can be seen on announcement date and dividend date.



Chapter – 3 Efficient Market Hypothesis And Random Walk Theory



3.1 Introduction

In finance, the efficient-market hypothesis (EMH) asserts that financial markets are

"informationally efficient". The weak version of EMH suppose that prices on traded assets (e.g.,

stocks, bonds, or property) already reflect all past publicly available information. The semi-

strong 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. Information or news in the EMH is defined as

anything that may affect prices that is unknowable in the present and thus appears randomly in

the future. The hypothesis has been attacked by critics who blame the belief in rational markets

for much of the financial crisis of 2007–2010, with noted financial journalist Roger Lowenstein

declaring "The upside of the current Great Recession is that it could drive a stake through the

heart of the academic nostrum known as the efficient-market hypothesis."

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 (and similarly, low price to cash-flow or

book value) outperform other stocks. Alternative theories have proposed that cognitive biases

cause these inefficiencies, leading investors to purchase overpriced growth stocks rather than

value stocks. Although the efficient-market hypothesis has become controversial because

substantial and lasting inefficiencies are observed, Beechey et al. (2000) consider that it remains

a worthwhile starting point.



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 newinformation’ (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 moderndefinition 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. As a consequence, prices are always at levels consistent with

‘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 information’ was

costless to obtain. If information was instead costly, there must be a financial incentive to obtain

it. But there would not be a financial incentive if the information was already ‘fully reflected’ in

asset prices (Grossman and Stiglitz 1980). A weaker, but economically more realistic, version of

the hypothesis is therefore that prices reflect information up to the point where the marginal

benefits of acting on the information (the expected profits to be made) do not exceed the

marginal costs of collecting it (Jensen 1978).

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.When

the joint hypothesis is rejected, as it often is, it is logically possible that this is a consequence of

deficiencies in the particular asset-price model rather than inthe efficient market hypothesis. This

is the ‘bad model’ problem (Fama 1991).



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 stockmarket):

The primary role of the capital [stock] market is allocation of ownership of theeconomy’s

capitalstock. In general terms, the ideal is a market in which pricesprovide accurate signals for

resource allocation: that is, a market in which firms canmake 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.The link

between an asset market that efficiently reflects available information (atleast up to the point

consistent with the cost of collecting the information) and its role in efficient resource allocation

may seem natural enough. Further analysis has made it clear, however, that an informationally

efficient asset market need not generate allocative or production efficiency in the economy more

generally. The two concepts are distinct for reasons to do with the incompleteness of markets and

the information-revealing role of prices when information is costly, and therefore valuable

(Stiglitz 1981).

3.3 Predictions of Efficient Market Hypothesis

The efficient market hypothesis yields a number of interesting and testable predictions about the

behaviour 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.



Prediction Empirical Evidence

Asset prices move as randomwalks over time.

Approximately true. However:Small positive autocorrelation for short-horizon (daily, weekly andmonthly) stock returns.Fragile evidence of mean reversion in stock prices at long horizons(3–5 years).

New information is rapidlyincorporated into asset prices,and currently availableinformation cannot be used topredict future excess returns.

New information is usually incorporated rapidly into asset prices,although there are some exceptions.On current information:In the stockmarket, shares with high returns continue to producehigh returns in the short run (momentum effects)In the long run, shares with low price-earnings ratios, high bookto-market-value ratios, and other measures of ‘value’ outperformthe market (value effects).In the foreign exchange market, the current forward rate helps topredict excess returns because it is a biased predictor of the futureexchange rate.

Technical analysis shouldprovide no useful information

Technical analysis is in widespread use in financial markets.Mixed evidence about whether it generates excess returns.

Fund managers cannotsystematically outperform themarket.

Approximately true. Some evidence that fund managerssystematically underperform the market.

Asset prices remain at levelsconsistent with economicfundamentals; that is, they arenot misaligned.

At times, asset prices appear to be significantly misaligned, forextended periods.



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.

Further, Malkiel finds fundamental analysis flawed because analysts often collect bad or useless

information and then poorly or incorrectly interpret that information when predicting stock



values. Factors outside of a company or its industry may affect a stock price, rendering further

the fundamental analysis irrelevant.

There are two forms of the random walk theory. In both forms, the rapid incorporation of

information is disadvantageous for investors and analysts. The semi-strong form states that

public information will not help an investor or analyst select undervalued securities because the

market has already incorporated the information into the stock price. The strong form states that

no information, public or private, will benefit an investor or analyst because even inside

information is reflected in the current stock price.

Malkiel acknowledges some statistical anomalies pointing to some exceptions to the random

walk theory:

1. Prices of small, less liquid stocks seem to have some serial price correlation in the short-term

because they do not incorporate information into their prices as quickly.

2. Contrarian strategies tend to outperform other strategies because reversals are often based on

economic facts rather than investor psychology.

3. There are seasonal trends in the stock market, especially at the beginning of the year and the

end of the week.

4. Stocks with low P/E ratios tend to outperform those with high P/Es, although the tendency is

volatile over time.

5. 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.

3.6 Do Asset Prices Move as Randon 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. While stock returns are

partially predictable, both in the short run and the long run, the degree of predictability is

generally small compared to the high variability of returns.

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). This implies that a ling period of below-average stock returns increases the

likelihood of a period of above-average returns in the future. These conclusions are less robust,

however, than the findings of short-run predictability in returns. The most important problem is

that since long-horizon return are measured over years, rather than days or weeks, there are

fewer data points available, making precise statistical inference difficult.



.

Chapter -4 Dividend Decisions:

Practical Facts



4.1 Dividend decisions

Dividends decisions are an important aspect of corporate financial policy since they can hae 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? And (b) for whom are they primary? An attempt has been made to develop a theoretical framework to approach these questions and identify the appropriate concept of primary and determine empirically the relationship of the primary notion with the objectives of the share holders and the management.

The modelling 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 behavioural 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 indicate that the methodology of the present study would be helpful in examine the notion of the primary of corporate dividend policy.

The following are the salient features of the empirical results.

(a) In the case of 17 firms dividend decisions were found to be primary. The factors which accounted for primary were the following:

(1) Need to build the desired internal reserve base in the long run, and(2) Inadequacy of funds to finance available investment opportunities while maintaining a

desired payout ratio.

(b) The Lintner hypothesis was validated under the following circumstance:

(1) The managers are oriented towards building up reserves to minimize dependence on external funds,

(2) There is a lack of motivation or market opportunity for growth of the firm and

(3) There is no shortage of funds to pursue the desired objectives.

(c) Primary of dividends in the long run was observed in the case of 27 firms. The significant reasons were

(1) Shortage of funds to take care of growth opportunities as well as requisite dividends, and

(2) 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 other’s 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: (a) the goals pursued by the management and the share holders can be at variance. The



conflict resolution mechanism has not been explicitly modeled. (b) The interrelationships between the short run and long run models are as yet tenuous. Further progress along these lines is possible. But it will be an agenda for the future.



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 insider 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 mechanisam 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 subject 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 insitiutional 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.



Chapter – 5 Empirical Research on Dividend Decisions



AUTO SECTOR

1. Hero Honda

Abnormal Return (Price): (In Percentage)

Time Window Cum. Ab. VolumeAD-30 TO AD-01 -11.63%AD-10 TO AD-1 2.32%

AD -13.39%AD+1-ED-1 -2.12%

ED -0.57%ED+1-ED+10 0.49%ED+1-ED+30 6.93%

Mean Daily Ab. Return 0.05%



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 leakeage 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

company.



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

1 Cum. AB

2,433.26 866.75 192.74 28,629,179.75 373,877.20 3,697,713.39 8,055,547.77

2 Days 30 10 1 53 1 10 303 Ave.

Daily AB (1/2)

81.11 86.68 192.74 540173.20 373877.19 369771.34 268518.26

4 Ave. Vol.

913.80

5 AB/Ave (3/4)

0.09 0.09 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



2. Maruti Suzuki


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -16.78%AD-10 TO AD-1 -9.31%

AD -1.50%AD+1-ED-1 -31.58%

ED 0.24%ED+1-ED+10 -0.78%ED+1-ED+30 -0.68%

Mean Daily Ab. Return -0.30%



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

is not a good script for the investors to invest as it does not generate positive abnormal returns.




No

AD-30 to AD-1

AD-10 to AD-1


ED+1 to ED+30

1 Cum. AB -1,670,679.03 -405,328.69 272,920.05

-14,078,952.95 -218,981.95 -1,328,906.59 -2,972,149.82

2 Days 30 10 1 130 1 10 303 Ave.

Daily AB (1/2)

-55689.30085 -40532.86923 272920.0513

-265640.6217 -218981.9487 -132890.659 -99071.66068

4 Ave. Vol.

322488.9487

5 AB/Ave (3/4)

-0.17 -0.13 0.85 -0.34 -0.68 -0.41 -0.31



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



3. Tata Motors


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -26.62%AD-10 TO AD-1 2.00%

AD -3.85%AD+1-ED-1 17.09%

ED -1.22%ED+1-ED+10 16.13%ED+1-ED+30 25.56%




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

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




No

AD-30 to AD-1

AD-10 to AD-1


ED+1 to ED+30

1 Cum. AB -139919.63 -40050.05 2902.87 -162581.92 357.87 131518.95 179215.97

2 Days 30 10 1 53 1 10 303 Ave.

Daily AB (1/2)

-4663.99 -4005.01 2902.87 -3067.58 357.87 13151.89 5973.87

4 Ave. Vol.

21016.13

5 AB/Ave (3/4)

-0.22 -0.19 0.14 -0.15 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.



BANKEX SECTOR

4. SBI Bank


Time Window Cum. Ab. VolumeAD-30 TO AD-01 7.47%AD-10 TO AD-1 -2.30%

AD -2.15%AD+1-ED-1 0.70%

ED -2.87%ED+1-ED+10 10.73%ED+1-ED+30 14.49%




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

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




No

AD-30 to AD-1

AD-10 to AD-1


ED+1 to ED+30

1 Cum. AB -1,602,983.21 -1,827,976.31 360,368.28

-4,492,536.08 -363,218.72 -2,915,610.74 -9,034,619.79

2 Days 30 10 1 28 1 10 303 Ave.

Daily AB (1/2)

-53432.77 -182797.63 360368.28 -84764.83 -363218.72 -291561.07 -301153.99

4 Ave. Vol.

1036962.72

5 AB/Ave (3/4)

-0.05 -0.18 0.35 -0.15 -0.35 -0.28 -0.29

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.



5. ICICI Bank


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -8.95%AD-10 TO AD-1 -3.81%

AD -8.95%AD+1-ED-1 -7.44%

ED -6.15%ED+1-ED+10 13.88%ED+1-ED+30 19.57%




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

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




NoAD-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

1. CUM. AB 16987202.77-

999433.85 3814968.69-

32821128.23-

14163260.08-

17125798.15-

48899142.77

2. DAYS 30.00 10.00 1.00 44.00 1.00 10.00 30.00

3.AVE.DAILY AB (1/2) 566240.09 -99943.38 3814968.69 -619266.57

-14163260.08 -1712579.82 -1629971.43

4. AVE.VOL. 4281562.31

5.AB/AVE (3/4) 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.



6. HDFC Bank


Time Window Cum. Ab. VolumeAD-30 TO AD-01 7.61%AD-10 TO AD-1 3.29%AD -2.15%AD+1-ED-1 10.05%ED 0.44%ED+1-ED+10 -4.63%ED+1-ED+30 -7.85%Mean Daily Ab. Return 0.06%



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

effective date.




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

1 CUM. AB-

739209.92 -525920.08-

109142.15 6712620.00 -267248.15-

1998830.23 -4730018.38

2 DAYS 30.00 10.00 1.00 53.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) -24640.33 -52592.01

-109142.15 126653.21 -267248.15 -199883.02 -157667.28

4 AVE.VOL. 365010.15

5 AB/AVE (3/4) -0.07 -0.14 -0.30 0.35 -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.



CAPITAL GOODS SECTOR

7. BHEL Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 0.12%AD-10 TO AD-1 1.50%AD 0.01%AD+1-ED-1 11.45%ED -1.19%ED+1-ED+10 -2.48%ED+1-ED+30 -2.48%Mean Daily Ab. Return 0.04%



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

share holders began to sell of the scripts.




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

1 CUM. AB -1322302.31 -39453.77 -165658.13-

10505270.97-

110721.13 -989480.90-

3945425.56

2 DAYS 30.00 10.00 1.00 53.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) -44076.74 -3945.38 -165658.13 -198212.66

-110721.13 -98948.09 -131514.19

4 AVE.VOL. 325027.13

5AB/AVE (3/4) -0.14 -0.01 -0.51 -0.61 -0.34 -0.30 -0.40

Interpretation

We can observe from the above chart that the script generated overall negative cumulative

abnormal return for the share holders. On the announcement date maximum abnormal volume



was there. This is because of announcement of dividend. Lots of intra day trading would have

taken place on this day. And this might be one of the reason for huge abnormality in volume on

that day. Before the announcement date script volume effect tend to react in normal manner. But

after the drastic impact on volume on the announcement date 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.



8. L & T Ltd .


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -0.60%AD-10 TO AD-1 2.40%AD 0.84%AD+1-ED-1 -10.07%ED 2.05%ED+1-ED+10 -0.78%ED+1-ED+30 -8.27%Mean Daily Ab. Return -0.12%



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.




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

1 CUM. AB 7498.84 4652.10 628.61 43904.49 764.56 6655.20 19902.48

2 DAYS 30.00 10.00 1.00 80.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 249.96 465.21 628.61

548.81764.56 665.52 663.42

4 AVE.VOL. 713.19

5 AB/AVE (3/4) 0.35 0.65 0.88 0.77 1.07 0.93 0.93

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.



9. BEML LTD


Time Window Cum. Ab. VolumeAD-30 TO AD-01 1.75%AD-10 TO AD-1 -1.87%AD 15.79%AD+1-ED-1 -51.52%ED -1.41%ED+1-ED+10 -8.86%ED+1-ED+30 -20.32%Mean Daily Ab. Return -0.41%



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.

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




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

1 CUM. AB 235732.84-

87812.19-

26164.86 118530.70-

11627.86-

128602.19-

418740.57

2 DAYS 30.00 10.00 1.00 77.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 7857.76 -8781.22

-26164.86 1539.36

-11627.86 -12860.22 -13958.02

4 AVE.VOL. 46522.86

5AB/AVE (3/4) 0.17 -0.19 -0.56 0.03 -0.25 -0.28 -0.30

InterpretationFrom 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.



HEALTH CARE SECTOR

10. Apollo Hospitals


Time Window Cum. Ab. VolumeAD-30 TO AD-01 6.94%AD-10 TO AD-1 16.66%AD -6.60%AD+1-ED-1 -26.13%ED -0.25%ED+1-ED+10 -6.27%ED+1-ED+30 -9.23%Mean Daily Ab. Return -0.31%



Interpretation

We can see from the above chart that before announcement date the script gives negative

cumulative abnormal return. On announcement date it gave positive cumulative abnormal return.

But after that the script gave negative cumulative return upto the ED+10. After that it had again

start rising. However the overall the script generates negative cum abnormal return.




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

1 CUM. AB 24492.9916414.4

4

-8997.3

9

-1818.5

8-

12307.3962890.0

321368.2

0

2 DAYS 30.00 10.00 1.00 50.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 816.43 1641.44

-8997.3

9 -36.37-

12307.39 6289.00 712.27

4 AVE.VOL. 17917.3

9

5 AB/AVE (3/4) 0.046 0.092 -0.502 -0.002 -0.687 0.351 0.040



Interpretation

From the above chart we can see that before announcement date script generated positive cumulative return. But on and after announcement date upto effective date it generated negative cumulative abnormal return. This suggests that before announcement date maximum transaction took place. During the period form announcement date to effective date the volume of transaction was very low. This means that investors were waiting for the distribution of dividend. But after effective date again it stated generating positive cumulative abnormal return. It means that investors started selling their shares after earning dividend income. This increased the volume of transactions and thereby generated positive cumulative abnormal return which is in the interest of shareholders.



11. Siemens Health


Time Window Cum. Ab. VolumeAD-30 TO AD-01 16.26%AD-10 TO AD-1 26.02%AD -3.59%AD+1-ED-1 -3.33%ED -1.63%ED+1-ED+10 7.19%ED+1-ED+30 10.76%Mean Daily Ab. Return 0.17%



Interpretation

From the above chart we can see that before announcement date the script generated negative

cumulative abnormal return, but before ten days of announcement date the price had drastically

rose. But after that it had noticed a sudden fall. From effective date onwards again it began to

rise and generate positive cumulative abnormal return. Overall this script generates positive cum

abnormal return. This is good script to invest in.




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

1 CUM. AB -2601.59 -52440.41 679.56 65912.74-

55.44 5812.38 19585.85

2 DAYS 30.00 10.00 1.00 51.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) -86.72 -5244.04 679.56 1292.41

-55.44 581.24 652.86

4 AVE.VOL. 1011.44

5 AB/AVE (3/4) -0.09 -5.18 0.67 1.28 -0.05 0.57 0.65



Interpretation

we can see from the above chart that on announcement date there was a big cumulative abnormal

return. But on effective date there was no such effect and the volume was not so abnormal to a

large extent. Overall the script generated positive cumulative abnormal return. Positive

cumulative abnormal return is considered a good criteria for investment. This script generates

good cumulative positive abnormal return. So it is good script to invest.



12. Opto Circuits





Interpretation

From the above chart we can see that the script generated positive cumulative return before

announcement date. But declaration of announcement of dividend created a negative effect. After

that it went on decreasing. Overall this script generated negative cum abnormal return. It is not a

good company to invest as it generates negative cum abnormal return.




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

1 CUM. AB-

3745014.28-

3591132.36-

344507.79-

13914872.87-

437621.79-

2590964.97-

7810699.10

2 DAYS 30.00 10.00 1.00 89.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) -124833.81 -359113.24

-344507.79 -156346.89

-437621.79 -259096.50 -260356.64

4 AVE.VOL. 722137.79

5AB/AVE (3/4) -0.17 -0.50 -0.48 -0.22 -0.61 -0.36 -0.36



Interpretation

From the above chart we can observe that the script generated a huge negative cumulative

abnormal return. On effective date also the script generated huge negative cumulative abnormal

return. Overall the script generated negative cumulative return throughout the event period which

is against the interest on the investors. So we can say that this is not a good script to invest.



FMCG SECTOR

13. Colgate Pamolive


Time Window Cum. Ab. VolumeAD-30 TO AD-01 8.49%AD-10 TO AD-1 1.65%AD 0.64%AD+1-ED-1 -10.79%ED -1.11%ED+1-ED+10 -1.88%ED+1-ED+30 -4.00%Mean Daily Ab. Return -0.05%



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

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




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

1 CUM. AB-1177893.23

-187461.72 45185.53

-1594751.70

-102838.47

-822364.72

-1795212.23

2 DAYS 30.00 10.00 1.00 33.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) -39263.11 -18746.17 45185.53 -48325.81

-102838.47 -82236.47 -59840.41

4 AVE.VOL. 116674.47

5AB/AVE (3/4) -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.



14. HUL Ltd


Time Window Cum. Ab. VolumeAD-30 TO AD-01 3.75%AD-10 TO AD-1 -0.46%AD -1.78%AD+1-ED-1 11.52%ED -0.59%ED+1-ED+10 6.65%ED+1-ED+30 18.15%Mean Daily Ab. Return 0.33%



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

of investors. So it is good script to invest.




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

1 CUM. AB

-1707260.62

-1014373.77

142121.85

539240.46

-345653.15

-2080499.92

-6339884.23

2 DAYS 30.00 10.00 1.00 31.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) -56908.69

-101437.38

142121.85 17394.85

-345653.15

-208049.99

-211329.47

4 AVE.VOL. 578620.15

5AB/AVE (3/4) -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.



15. Dabur India Ltd


Time Window Cum. Ab. VolumeAD-30 TO AD-01 2.39%AD-10 TO AD-1 1.49%AD 0.95%AD+1-ED-1 0.02%ED 1.12%ED+1-ED+10 3.76%ED+1-ED+30 3.64%Mean Daily Ab. Return 0.05%



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

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




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

1 CUM. AB1639089.10

1860744.93

559583.56

11787492.44

58671.56

869090.49

1932615.34

2 DAYS 30.00 10.00 1.00 60.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 54636.30

186074.49

559583.56 196458.21

58671.56 86909.05 64420.51

4 AVE.VOL. 84381.44

5AB/AVE (3/4) 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 reason 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.



IT SECTOR

16. Tcs Ltd


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -19.47%AD-10 TO AD-1 -13.23%AD -0.92%AD+1-ED-1 -10.31%ED -51.54%ED+1-ED+10 2.97%ED+1-ED+30 10.37%Mean Daily Ab. Return -0.22%



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

return in positive. The return has increased subsequently


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

1 CUM. AB637265.67

691224.33

768359.67

6188982.67

211483.67

1487268.33

4501477.67

2 DAYS 30.00 10.00 1.00 55.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

21242.19

69122.43

768359.67

112526.96

211483.67

148726.83

150049.26

4 AVE.VOL. 223657.33

5 AB/AVE (3/4) 0.09 0.31 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.



17. Infosis ltd.





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

in.




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

1 CUM. AB

-237499.68

-226313.76

-142094.39

-343275.42

-116541.39

-866006.16

-1986191.08

2 DAYS 30.00 10.00 1.00 49.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) -7916.66

-22631.38

-142094.39 -7005.62

-116541.39

-86600.62 -66206.37

4 AVE.VOL. 225166.39

5 AB/AVE (3/4) -0.04 -0.10 -0.63 -0.03 -0.52 -0.38 -0.29



Interpretation


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.



18. Wipro Ltd


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -11.30%AD-10 TO AD-1 -8.01%AD 3.61%AD+1-ED-1 -14.97%ED -2.43%ED+1-ED+10 5.38%ED+1-ED+30 13.34%Mean Daily Ab. Return -0.09%



Interpertation

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

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




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

1 CUM. AB

-6013.45

945322.95

684291.66

4840899.61

-112800.34

-1058515.74

729500.47

2 DAYS 30.00 10.00 1.00 67.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

-200.45 94532.29

684291.66 72252.23

-112800.34

-105851.57 24316.68

4 AVE.VOL. 238753.34

5 AB/AVE (3/4) 0.00 0.40 2.87 0.30 -0.47 -0.44 0.10

Interpretation







METAL SECTOR

19. Sterlite India Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -22.32%AD-10 TO AD-1 -6.43%AD -3.32%AD+1-ED-1 -56.19%ED -4.12%ED+1-ED+10 -4.09%ED+1-ED+30 -4.86%Mean Daily Ab. Return -0.53%



Interpretation





which the returns have fallen down.




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

1 CUM. AB2472715.67

-534961.85

-201881.64

435706.46

-461724.64

-3291757.49

-7431672.54

2 DAYS 30.00 10.00 1.00 138.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 82423.86

-53496.18

-201881.64 3157.29

-461724.64

-329175.75

-247722.42

4 AVE.VOL. 956294.64

5 AB/AVE (3/4) 0.09 -0.06 -0.21 0.00 -0.48 -0.34 -0.26



Interpretation


This could be due to huge selling pressure on the Announcement Date. The script generated a

positive volume 30 days prior to the Announcement Date. Then 1 day after the Announcement

Date and 1 day prior to the ex-dividend date, the script generated positive cumulative abnormal

volume. On the other days, there was a negative cumulative abnormal volume generated by the

script.



20. HindZinc Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -5.05%AD-10 TO AD-1 -5.33%AD -0.75%AD+1-ED-1 -24.43%ED -2.50%ED+1-ED+10 1.64%ED+1-ED+30 -8.80%Mean Daily Ab. Return -0.29%



Interpetation





which the returns have fallen down.




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

1 CUM. AB

-547039.00

-324809.08

-55979.85

-1445679.69

-58012.85

-40529.77

-860385.46

2 DAYS 30.00 10.00 1.00 97.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

-18234.63

-32480.91

-55979.85 -14903.91

-58012.85

-4052.98

-28679.52

4 AVE.VOL. 88401.855 AB/AVE (3/4) -0.21 -0.37 -0.63 -0.17 -0.66 -0.05 -0.32

Interpertation







21. TINPLATE Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 18.84%AD-10 TO AD-1 19.00%AD 2.26%AD+1-ED-1 -21.68%ED 4.96%ED+1-ED+10 19.92%ED+1-ED+30 33.26%Mean Daily Ab. Return 2.29%



Interpretation


Abnormal Return. The return has somewhat worsened on the Announcement Date and thereafter.

But again on the ex-dividend date, the returns have increased. Even after the ex-dividend date,

the returns have increased. So this is a good script to invest for the investors.




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

1 CUM. AB492712.23

557122.64

108204.95

-41583.49

-10283.05

510117.59

1149279.82

2 DAYS 30.00 10.00 1.00 40.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 16423.74 55712.26

108204.95

-1039.59

-10283.05 51011.76 38309.33

4 AVE.VOL. 19268.055 AB/AVE (3/4) 0.85 2.89 5.62 -0.05 -0.53 2.65 1.99



Interpretation






investors so that the volume had been shot up. But after the ex-dividend date, the situation has

improved and the script has started generating positive absolute volume.



OIL AND GAS SECTOR

22. ONGC


Time Window Cum. Ab. VolumeAD-30 TO AD-01 1.60%AD-10 TO AD-1 -0.96%AD -1.82%AD+1-ED-1 12.87%ED -0.22%ED+1-ED+10 -4.46%ED+1-ED+30 3.92%Mean Daily Ab. Return 0.13%



Interpretation


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.




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

1 CUM. AB

-640881.16

-244134.08

62220.86

-1913508.43

-265278.14

-1017406.81

-3236460.43

2 DAYS 30.00 10.00 1.00 75.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

-21362.71

-24413.41

62220.86 -25513.45

-265278.14

-101740.68

-107882.01

4 AVE.VOL. 423018.14

5 AB/AVE (3/4) -0.05 -0.06 0.15 -0.06 -0.63 -0.24 -0.26



Interpretation










23. GAIL Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -10.08%AD-10 TO AD-1 -8.89%AD 1.45%AD+1-ED-1 13.81%ED -0.26%ED+1-ED+10 0.87%ED+1-ED+30 0.41%Mean Daily Ab. Return 0.04%



Interpretation



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

returns.




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

1 CUM. AB1710199.38

246481.19

378046.65

4965535.14

-244895.35

-564680.46

861797.27

2 DAYS 30.00 10.00 1.00 64.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 57006.65

24648.12

378046.65 77586.49

-244895.35

-56468.05

28726.58

4 AVE.VOL. 344464.35

5 AB/AVE (3/4) 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 ex-dividend date i.e. from the day after the ex-dividend date till the month after the ex-dividend date



24. Aban Off Shore


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -16.82%AD-10 TO AD-1 -0.42%AD -2.85%AD+1-ED-1 8.01%ED -2.52%ED+1-ED+10 -13.20%ED+1-ED+30 -26.19%Mean Daily Ab. Return -0.36%



Interpretation









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

1 CUM. AB966687.24

1732845.12

283586.39

-351260.85

-631461.61

-4343231.88

-12981201.59

2 DAYS 30.00 10.00 1.00 34.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

32222.91

173284.51

283586.39

-10331.20

-631461.61

-434323.19

-432706.72

4 AVE.VOL. 1297227.61

5 AB/AVE (3/4) 0.02 0.13 0.22 -0.01 -0.49 -0.33 -0.33



Interpretation








POWER SECTOR25. NTPC Ltd


Time Window Cum. Ab. VolumeAD-30 TO AD-01 5.15%AD-10 TO AD-1 6.18%AD 1.54%AD+1-ED-1 -4.05%ED -0.62%ED+1-ED+10 -1.27%ED+1-ED+30 -0.16%Mean Daily Ab. Return 0.01%



Interpretation


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

some adverse impact on the investors on the Announcement date.




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

1 CUM. AB

-8566194.56

-1375448.11

1171726.11

-9400108.89

-341898.89

-7952860.22

-19805663.89

2 DAYS 30.00 10.00 1.00 98.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

-285539.82

-137544.81

1171726.11

-95919.48

-341898.89

-795286.02

-660188.80

4 AVE.VOL. 1599144.89

5AB/AVE (3/4) -0.18 -0.09 0.73 -0.06 -0.21 -0.50 -0.41



Interpretation










26. Power Grid Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 15.32%AD-10 TO AD-1 0.59%AD -0.05%AD+1-ED-1 0.44%ED 0.17%ED+1-ED+10 -0.20%ED+1-ED+30 1.02%Mean Daily Ab. Return 0.13%



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-

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



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

1 CUM. AB9775476.21

1493536.34

-411865.24

-5564769.13

-1036178.24

-3478473.42

-14519236.97

2 DAYS 30.00 10.00 1.00 63.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

325849.21

149353.63

-411865.24

-88329.67

-1036178.24

-347847.34

-483974.57

4 AVE.VOL. 1356979.24

5AB/AVE (3/4) 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.



27. Tata Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -0.84%AD-10 TO AD-1 -1.29%AD 0.10%AD+1-ED-1 11.84%ED -2.66%ED+1-ED+10 0.10%ED+1-ED+30 12.34%Mean Daily Ab. Return 0.18%



Interpretation



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

thereafter the returns have increased substantially.




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

1 CUM. AB

-463004.42

-589144.33

-75328.42

-2003953.33

-88426.42

-335100.33

-1173314.58

2 DAYS 30.00 10.00 1.00 44.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

-15433.48

-58914.43

-75328.42 -45544.39

-88426.42

-33510.03 -39110.49

4 AVE.VOL. 144315.42

5 AB/AVE (3/4) -0.11 -0.41 -0.52 -0.32 -0.61 -0.23 -0.27

Interpretation




Date. However, after the Announcement of Dividend, the Absolute volume increases till the ex-

dividend date. But after the ex-dividend date, it again starts falling.



REALITY SECTOR

28. DLF Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 3.74%AD-10 TO AD-1 7.95%AD 1.11%AD+1-ED-1 16.18%ED -0.45%ED+1-ED+10 0.41%ED+1-ED+30 19.44%Mean Daily Ab. Return 0.28%



Interpretation

This is a good script to invest in. The returns have remained positive before and after the

Announcement date. Only on the ex-dividend date, the script showed negative returns, but after

that the returns have been positive. This indicates there has been some positive impact on the

investors on the ex-dividend date.




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

1 CUM. AB1756546.23

-1733861.03

-423734.72

33637807.87

1891299.28

6091186.69

20522644.36

2 DAYS 30.00 10.00 1.00 103.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 58551.54

-173386.10

-423734.72 326580.66

1891299.28

609118.67 684088.15

4 AVE.VOL. 1258961.72

5AB/AVE (3/4) 0.05 -0.14 -0.34 0.26 1.50 0.48 0.54

Interpretation

The abnormality in the volume on the Announcement Date reached at its peak in terms of

negativity. The situation improved thereafter leading to an increase in the absolute volume. The



absolute volume reached at its peak on the ex-dividend date. This can be due to huge selling

pressure on the Ex-dividend date. Thereafter the absolute volume has decreased subsequently.

29. Anantraj Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 -74.99%AD-10 TO AD-1 -13.06%AD 0.14%AD+1-ED-1 -38.77%ED -9.32%ED+1-ED+10 -0.99%ED+1-ED+30 -30.06%Mean Daily Ab. Return -1.45%



Interpretation





which the returns have fallen down. The returns have remained negative after the Announcement

Date.




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

1 CUM. AB

-4321347.70

-1292864.43

-272972.92

-1475073.89

-216773.92

-67089.51

-2831575.30

2 DAYS 30.00 10.00 1.00 34.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2)

-144044.92

-129286.44

-272972.92 -43384.53

-216773.92

-6708.95 -94385.84

4 AVE.VOL. 443745.92

5 AB/AVE (3/4) -0.32 -0.29 -0.62 -0.10 -0.49 -0.02 -0.21



Interpretation










30. Ackruti City Ltd.


Time Window Cum. Ab. VolumeAD-30 TO AD-01 27.50%AD-10 TO AD-1 13.95%AD -0.82%AD+1-ED-1 31.11%ED 2.65%ED+1-ED+10 2.41%ED+1-ED+30 27.23%Mean Daily Ab. Return 0.72%



Interpretation


Abnormal Return. The return has somewhat worsened on the Announcement Date. But after the


positive impact on the investors on the announcement date. So this is a good script to invest in

for the investors.




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

1 CUM. AB208679.63

461323.53

50292.79

2297931.47

49021.79

20871.53

2194418.37

2 DAYS 30.00 10.00 1.00 30.00 1.00 10.00 30.00

3AVE.DAILY AB (1/2) 6955.99 46132.35

50292.79 76597.72

49021.79 2087.15 73147.28

4 AVE.VOL. 39140.215 AB/AVE (3/4) 0.18 1.18 1.28 1.96 1.25 0.05 1.87

Interpretation

This script is a good one to invest as it has positive absolute volume prior to the Announcement

date and also after the Announcement date. The script also has positive absolute volume prior

and after the ex-dividend date.



Chapter – 6 Findings



Mean Cumulative Abnormal Return

TIME WINDOW Mean Cumulative Abnormal ReturnAD-30 TO AD-01 -1.36%AD-10 TO AD-01 -2.91%

AD 0.43%AD+01 TO ED-01 -6.23%

ED -2.58%ED+01 TO ED+10 -10.75%ED+01 TO ED+30 -9.75%



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

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 Mean average Abnormal ReturnAD-30 TO AD-01 -0.20%AD-10 TO AD-01 0.07%AD 0.43%AD+01 TO ED-01 -0.10%ED -2.58%ED+01 TO ED+10 0.16%ED+01 TO ED+30 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 MADCAVAD-30 TO AD-01 556231.972AD-10 TO AD-01 -160613.327AD 217554.3427AD+01 TO ED-01 1087939.343ED -167032.854ED+01 TO ED+10 -846716.415ED+01 TO ED+30 -2465219.33



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 MRABAVAD-30 TO AD-01 0.01AD-10 TO AD-01 0.04AD 0.70AD+01 TO ED-01 0.00ED -0.24ED+01 TO ED+10 0.01ED+01 TO ED+30 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.



Chapter – 7 Recommendations



Recommendations

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.



Chapter – 8 Conclusions



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.



Refrences

1. Anand, M. (2004). Factors influencing dividend policy decisions of corporate india.

ICFAI Journal of Applied Finance, 10(2), 5 -16

2. Beechey, M, Gruen, D & Vickery, J.(2000). The efficient market Hypothesis: A survey.

Reserve Bank of Australia, Economic Research Department.

3. Dr. Y.S.R (2003, june 11). Dividend Policy of Indian corporate firm: An analysis of

trends and determinants. Retrieved Feburary 28, 2009, from www.ssrn.com:

http://papers.ssrn.com/sol3/results.cfm? Request Timeout = 50000000

4. Farouqui, S.U., & saiyed, A.A. (2008, April). Dividend – A lure for investors. Banking

Finance,5

5. Black, F. (1976), “Dividend Puzzle” Journal for portfolio Management, Vol. 2, No 2,

winter,pp. 5-8

6. Mahahjan, S & Singh, B, (2008). “Trading Volume and Return Volatility Dynamics in

Indian Stock Market.” The ICFAI journal of Applied Finance.,14(2),20.

7. Rijwani, p. (2007). Stock split – The mystery Unleashed, Research Development

Association Journal, December 2007.

8. Singla, H.K. (2007, May). “An Empirical Test – Stock Split Announcement in Indian

Market.” Portfolio Organiser, 9

9. Miller, M and K. Rock (1985), “ Dividend Policy under Asymmetric Information”,

Journal of Finance, Vol. 40, No.4, pp. 1031-1051

10. Data Collected from

a. www.bseindia.com

b. www.moneycontrol.com

c. Prowess software of CMIE


http://www.moneycontrol.com/

http://www.bseindia.com/

http://papers.ssrn.com/sol3/results.cfm

http://www.ssrn.com/


APPENDIX


Corporate Dividend Policy

Documents

Transcript of Corporate Dividend Policy