NEPALESE STOCK MARKET REACTION TO DIVIDEND ANNOUNCEMENT: AN EVENT-STUDY ANALYSIS
Author(s):
Rupak Thapa, Sonal Chaudhary
Keywords:
Stock price, Dividend information, Market efficiency, Event study, Information Asymmetry JEL Classification: G11, G12, G14, G35
Abstract
The study evaluates the response of the Nepalese stock market to dividend declarations. Taking the representative sample of 49 listed firms (22.37% total listed companies in Nepal Stock Exchange), i.e., the large-cap companies from each sector, an Event study methodology using the Capital Asset Pricing Model (CAPM) is employed to calculate the Cumulative Abnormal Returns (C.A.R.) using different event windows around the dividend declaration date and we also check the information asymmetry, if any. We document that the Nepalese stock market reacts negatively to dividend news. In the Nepalese Market, in contrast to common conjecture, we find that for high market capitalized firms, there is no dividend information leakage before the announcement at the aggregate level; however, high C.A.R. & high stock price volatility in the pre-dividend declaration window, signal information leakage prevails in some sectors and some companies. Based on our samples, the results indicate that the Nepalese stock market is inefficient. The results of this study will help investors to make their investment decision wisely, and regulators can use the findings of this research to make prudent regulations for the overall development of the stock market.
Article Details
Unique Paper ID: 158229

Publication Volume & Issue: Volume 9, Issue 9

Page(s): 115 - 122
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