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Corporate Announcements and Market Efficiency: A Case on Indian Capital Market

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  • Nagendra Marisetty
  • Pardhasaradhi Madasu

Abstract

Capital markets being the backbone of the economy, are expected to be functioning efficiently. Efficiently-priced financial markets are considered a catalyst for the economic growth of the nations (Malkiel, 2010). Efficient markets are the reflection of security valuations. In an informationally efficient market, no one can beat the market and make abnormal returns based on the information because the information is instantaneously observed in the stock prices. The current paper analyses the market efficiency of three of the most popular corporate events, i.e., announcement of cash dividends, bonus issues, and stock split in the Indian context. The sample is 2253 pure cash dividend announcements (627 large-caps, 552 mid-caps, and 1074 small-caps), 152 bonus issue announcements (49 large-caps, 33 mid-caps, and 70 small-caps), and 181 stock split announcements (35 large-caps, 34 mid-caps, and 112 small-caps) were used for this study. Event methodology market model used to calculate Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR). The results of the study have few findings which are contradictory to the existing literature on market efficiency. The cash dividend announcements have shown evidence for market efficiency, and results are contrary to Gupta et al. (2012), but the results are similar to Mishra (2005). Bonus issue announcements also have shown evidence for a semi-strong form of efficiency, test results identical to Dhar and Chhaochharia (2008), Kumar and Mittal (2015). Stock split announcements have not shown market efficiency, and the effect is similar to the study of Lakshmi and Roy (2012) and contrary to Chavali and Zahid (2011). Our results also support the premise that the emerging countries depict evidence of market efficiency (Bechev, 2003). Finally, we conclude that market efficiency results differ based on corporate announcements and market capitalization.

Suggested Citation

  • Nagendra Marisetty & Pardhasaradhi Madasu, 2023. "Corporate Announcements and Market Efficiency: A Case on Indian Capital Market," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(8), pages 1-71, February.
    • Handle: RePEc:ibn:ijbmjn:v:16:y:2023:i:8:p:71
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    References listed on IDEAS

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    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Ray Ball, 2009. "The Global Financial Crisis and the Efficient Market Hypothesis: What Have We Learned?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(4), pages 8-16, September.
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    4. Asim Mishra, 2005. "An Empirical Analasis of Market reaction Around the Bonus Issues in India," Finance 0505025, University Library of Munich, Germany.
    5. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    6. Dasilas, Apostolos & Leventis, Stergios, 2011. "Stock market reaction to dividend announcements: Evidence from the Greek stock market," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 302-311, April.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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