Effect of Dividend Declaration on Stock Price Movement in Bangladesh – A Study on Five Selected Private Commercial Banks Listed in DSE
Keywords:The dividend, Commercial Bank, stock, DSE, Share holders, Declaration
Payments of dividend are the key return variable from which investors determine share value. They represent a source of cash flow to the stock holders and provide information about the firms’ current and future performance. Investors are mostly look at the profitability of the firm while purchasing equity shares from secondary market. Since dividend is paid to the share holders is one of the best indicators of profitability. It is generally believe that dividend plays a crucial role in determining market price of the share. The relationship between dividend declaration and share price is not clear in the literature of finance and it is still a controversial issue in both developing and under developing countries. This research attempts to analyze the behavior of stock price reactions to the declaration of dividend of five commercial banks operating in Bangladesh. For this research basically focuses on secondary data obtained from Dhaka stock exchange. This is a qualitative research because it is designed to tell the researcher how and why share price moves after dividend declaration dates. This study also analyzed the commercial banks’ dividend practices with two existing theories of dividend policies named Modigliani and Miller hypothesis of irrelevance and relevant Gordon’s model. It appears that the Gordon’s model can best describe the commercial banks dividend practices. The major objective of this study is to identify whether dividend declaration convey any information to the market that results a price reaction for adjusting the dividend announcement information. Finally, found that dividend announcement has no contribution to convey information to the market that results from price reaction.
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