Does the Market React to Dividend Announcements? An Event Study of NSE-Listed Indian Companies

Abstract

Abstract This study tests whether the Indian stock market reacts to dividend announcements, using an event-study methodology on 18 dividend events among large-capitalisation NSE-listed companies during 2025-2026. Following the standard market-model approach, expected returns for each stock were estimated using a 100-trading-day window prior to the event, benchmarked against the Nifty 50 index. Abnormal returns and cumulative abnormal returns (CAR) were computed around each company's ex-dividend date. The results show no statistically significant abnormal return on the ex-dividend date itself (mean AR = 0.80%, p = 0.146), and the three-day window around the ex-date falls just short of conventional significance (mean CAR[-1,+1] = 1.99%, p = 0.063), with 13 of 18 events showing a positive reaction. The study argues that this pattern is economically sensible rather than a sign of market inefficiency: because dividend amounts in India are typically fixed and publicly disclosed by the company's board well before the ex-dividend date, the ex-date itself carries little new information by the time it mechanically arrives, consistent with semi-strong-form market efficiency. The near-significant positive drift found here nonetheless suggests dividend information is not fully absorbed by the time of the ex-date, warranting further study using the original board-announcement date rather than the ex-date as the event of interest. Keywords: event study, dividend signaling, market efficiency, abnormal returns, Indian stock market, NSE