Impact of Dividend Announcements on Share Prices: Evidence from Material Sector Companies Listed on the Colombo Stock Exchange

Abstract

Purpose: Dividend announcements play a significant role in the financial market as it provides important information to investors regarding the financial health and future prospects of a company. The major aim of the study is to investigate the impact of dividend announcement on share prices and the informational content of dividend announcements pertaining to the listed material sector companies in Sri Lanka. Design/Methodology/Approach: A sample of 21 companies from the material sector was selected for the study. The daily closing stock prices and first and final dividend announcements for the period from 2017 to 2021 were used as the dependent variables and independent variables respectively. The event study method was employed to reach the findings. Findings: The findings of the study reveal that the dividend announcement leads to a positive market reaction and it supports the signaling theory. This study will be particularly useful to prospective investors in making decisions aligned with the dividend announcement pertaining to listed material sector firms in Sri Lanka. Originality: This study intends to examine the market reaction to dividend announcements specifically for material sector firms listed on the Colombo Stock Exchange in Sri Lanka, while previous studies have explored the signaling theory and market reactions to dividend announcements across all sectors in Sri Lanka. Further, it is unique in that it analyzes data collected during an abnormal situation in the country.