The study of the relationship between dividends declaration and stock prices in an emerging marketcase of ftse bursa Malaysia KLCI

Abstract

Purpose: The aim of this study is to explore the impact of dividends declaration on share prices of Malaysia from time period of 2012 to 2013 in FTSE KLCI. A total of 17 companies were selected as a sample for the study. A 15 trading days were defined as event window, including the day of dividends declaration, in which 7 days before and 7 after the event day were chosen. Approach/Methodology/Design: A typical event study methodology was adopted to achieve the desired research objectives. FTSE KLCI was taken as a market index to calculate expected returns with the help of market model. A 60 trading days were defined as estimation window, to find out actual returns for both market index and companies. The abnormal return was then generated by taking difference of actual and expected returns for the defined event window. Similarly weighted average abnormal returns and CAR’s were calculated for 17 firms. The t-tests were used to check the significance of abnormal returns and CAR. Findings: The results indicate that dividends declaration in Malaysia carry significant information regarding decision of shareholders on stock prices. In addition this shows that Malaysian stock index investors depend upon the signal generated by dividends declaration in taking investment decisions, therefore it showed a positive relationship between dividends declaration and stock prices of companies listed in KLCI. The results are consisted with recent studies of Dasilas et al. (2008); Akbar & Baig (2010); Sare, Akuoko & Esumanba (2013) among others. Originality/Value: To relate economic conditions of the country with the efficiency of their stock market index with respect to dividends declaration impact on stock prices. This proposed study is an attempt to deal with a much needed research in emerging market like Malaysia, whereas previously focus was on developed markets.