Table of ContentsResearch Problem, Research Question and ObjectivesLimitations of the StudyLiterature ReviewThe Purpose of this study is to study the impact of dividend announcement on the price action of listed manufacturing companies in Sri Lanka and for the period of 2013 to 2017. The data collected for this study was for 10 listed manufacturing companies in Sri Lanka. Lanka as a sample for this study. Event study methodology is used to analyze the stock price reaction to dividend announcements. Event study methodology and regression analysis are used to analyze the collected data. This study examines the impact of dividend announcements on stock prices by evaluating stock returns such as actual stock return, expected stock return and abnormal return of selected manufacturing companies listed on CSE (Colombo Stock Exchange) . This study produces important details for investors and other stakeholders. This information will contribute to the development of the stock market and the economy. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the original essayKeywords: abnormal return, dividend announcement, event study, stock pricesThis study focuses on dividend announcements and their impact on stock prices in Sri Lanka. stock market. In the Sri Lankan context, it is very important to study the impact of dividend announcement on stock prices. Investors involved in buying stocks basically consider factors such as stock price, risk, company dividends, leverage, profitability and other factors. The price of the stock is conceded because the price of the sellers and buyers is agreed. In general, stock prices change frequently. There are several reasons that influence the change in stock prices, such as dividend announcement, bonus issue, rights issue, etc. Not only that, but also the economic stability of the country, the political situation, the internal situation of businesses, etc. There is a number of research that investigates the idea that the factors mentioned above affect stock price. Therefore, dividend announcement is one of the key elements that can impact investors' decision making. According to Linter (1956), the reaction of investors to dividend announcements. He explains that there is a relationship between dividend policy and shareholder wealth. Companies issue shares to increase investors' funds with the aim of financing and increasing the company's wealth. Dividends are the return on shares. When companies listed on the CSE decide to pay dividends to shareholders. They announce it to the public in the form of company announcements. There are two ways to pay dividends: the interim dividend and the final dividend. Annual dividend payment periods differ from company to company. However, every company listed on the CSE announces its dividend payments to the public in the form of corporate announcements. Companies expect to increase the market value of the company through the announcement of dividends. Brown, Finn, and Hancock (1977, hereafter BFH) found that dividend announcements have an informative effect on stock prices. In CSE, share price is the main factor, it plays a vital role. These studies aim to identify the impact of the dividend announcement on the stock price on the Colombo Stock Exchange in thedynamic context of Sri Lanka. According to the Sri Lankan situation, it is very useful to study the impact of dividend announcement on stock price. Because investors interested in stock trading basically study the important factors. (Velnampy, Nimalthasan and Kalaiaras, 2014) emphasize that dividend policy affects company performance. Therefore, dividend announcement is one of the important factors that can influence investors' expectations. Previous studies provide questionable ideas about the relationship between dividend announcements and stock prices. “The most debated issue in the world of finance concerns the effect of dividend policy on the market price per share.” (Md. Abdulla Al Hasan, Md Asaduzzaman, Rashed Al Karim, 2013) and most of the previous studies related to this topic were carried out based on the stock markets of Western countries. Michaely et al. (1995) study the announcements of 561 dividend introductions and 887 dividend omissions by companies listed in the United States between 1964 and 1988. Furthermore, only a few studies have been carried out regarding the announcement of dividends on stock prices in link with the Sri Lankan context. In the context of Sri Lankan stock market, Bandara (2001) investigated the dividend announcement. He found that the market reacted positively to the announcement of a dividend increase and that it reacted negatively to the announcement of a dividend decrease. “The dividend announcement is generally considered as a positive signal to shareholders and its positive impact on the stock price” (Mehndiratta & Gupta, 2010). These results are particularly useful to investors, listed companies and those interested in stock market behavior. It helps in making successful investment decisions. The dividend policy will not affect the market value of the company (Black & Scholes, 1974; Conroy, Eades and Harris, 2000). This means that the stock price does not react to the dividend announcement and according to Miller and Modigliani (1961), they argue that there is no relationship between the dividend policy of the company and the shareholder wealth. Other studies have also not validated these two results. But there remains a problem with the previous conclusions. Therefore, it is essential to conduct more in-depth studies regarding dividend announcements and stock prices. Research Problem, Research Question and Objectives Dividend announcement has an impact on investors' decision. When making decisions, investors face difficulties. Therefore, this study investigates the effect of dividend announcement on stock price. The existing literature provides conflicting ideas on the relationship between dividend announcements in the Sri Lankan context. In a foreign context, we find different results in different studies regarding dividend announcements and stock prices. There are also some questionable conclusions. “The most debated issue in finance concerns the effect of dividend policy on the market price per share.” (Md. Abdulla Al Hasan, Md Asaduzzaman, Rashed Al Karim, 2013). Furthermore, only a small amount of research has been conducted regarding the announcement of dividends on stock prices. linked to the Sri Lanka Stock Exchange. Therefore, this research studies the impact of dividend announcement on stock prices. This research was carried out in different countries with different culture, business environment and government policies. Moreover, the different business sectors based on this research and the results of this research were completelydifferent. Therefore, the results of this research cannot be applied to the Sri Lankan context as it is and it is difficult to assess the effect of leverage on the growth of manufacturing companies in the Colombo Stock Exchange (CSE) based on knowledge from previous research. The aim of this study is to fill this knowledge gap. This research attempts to answer the following sub-questions: does the announcement of the dividend have an impact on the share price? to analyze the relationship between dividend announcement and stock price of listed manufacturing companies in Sri Lanka. Importance of studies. This study aims to determine whether the impact of the dividend announcement on the stock price. a) Investors can identify what is the effect of the dividend announcement on the investment decision. b) This research will help investors and many people interested in studying in this field. Therefore, this study will contribute to filling the research gap on this topic of srilnka stock market. c) The CSE is the only stock market in Sri Lanka. Therefore, every transaction has a direct impact on the economic development of the country. It is therefore important to study the factors that can influence stock prices in more detail in order to determine economic development. Limitations of the study a) The study is limited to 10 listed manufacturing companies in Sri Lanka. Therefore, we cannot consider all manufacturing companies in Sri Lanka. b) This study only examines the dividend announcement. However, many other factors can affect the stock price.c) In this study, the time period considered as testing period is not sufficient.d) The accuracy of the information depends on the CSE data .Literature reviewThe study of the effect of dividend announcement on stock prices with reference to manufacturing companies listed on the CSE is done in a context where there is a number of previous research related to dividend policy and stock prices. There is a close relationship between dividend announcements and stock prices. But some argue that there is no relationship between dividend announcements and stock prices. However, there is still no standard opinion on this issue. According to previous studies on foreign stock markets, there is a certain relationship between dividend announcements and stock prices. They found that there is a positive relationship between dividend announcements and stock prices. Many previous studies suggest that increasing the dividend announced by a company is a positive signal about the company's future, thereby significantly increasing its stock price. Likewise, the positive signal implies that the company is now attracting a new generation of investors, thereby increasing demand for its shares. (Laabs Douglas, S and Bacon Frank, W, 2013) Subsequently, Asquith and Mullins (1983) carried out a study on market reaction to initial and subsequent dividend announcements in the US market; The study analyzed a sample of 168 companies that initiate a dividend to shareholders. They found large and significantly positive two-day abnormal returns (the average abnormal return increased by (3.7%) in response to dividend launch announcements. Additionally, they found that the average market response to the The results of this study also support the semi-strong-form efficient market hypothesis. 165 specially designated dividend announcements of stocks traded onUS stock markets covering the year 1969 to 1979. He found that 2.1% of positive average returns were abnormal due to announcements of specially designated dividends in the US market. In a later study, Scott and Keith (1996) examined the differential stock price response to increasing dividends and decreasing announcements relative to the bull. , and the bear market phase. They found that market phase had a significant impact on abnormal returns around the announcement, and it appeared that more information was conveyed by dividend change announcements that ran counter to the market phase. walk. Finally, they concluded that these results were consistent with the information content of the dividend hypothesis. Miller & Modigliani (1961) first studied the impact of dividend policy on company value. Their study shows that, under certain limited conditions, the company's dividend policy has no effect on the value of its shares. The research carried out by Gurgul, Majdosz and Mestel (2006) focused on studying the impact of changing the dividend announcement on stock prices and turnover developments in Germany. capital market. Positive and negative dividend variations had a statistically significant influence on price variation in the same direction as the announcement. Dividend increase announcements are received positively by investors, while some evidence suggests that investors react negatively before dividend decrease announcements (Jais, Karim, Funaoka, & Abidin, 2009). The Bird in HandThis theory has received the greatest support (Naser, Nuseibeh & Rashed, 2013). According to (Lonie, Abeyratna, Power and Sinclair, 1996), we found that current earnings were the dominant signal for the capital market and that the announcement of dividends was partial and often an inferior substitute signaling mechanism allowing managers to convey to investors their views on the future performance of the company. According to previous studies regarding stock prices and company announcements, there is a strong relationship between dividend announcements and stock prices. We consider CATV for the short-term event period rather than AR as the dependent variable, and study: (1) which changes have the greatest impact on investor behavior; and (2) whether the announcement conveys new information to investors which, in turn, influences their trading. In other words, we examine whether investors react based on their own interpretations of the announcements. Our results show that news on dividends contains information, while the evolution of profits does not provide explanatory power on the variation in the television reaction to the announcement. Based on our findings, we recommend that policymakers use trading volume alongside stock prices to reflect investor behavior. (Felimban, Floros and Nguyen, 2018) The greater the variation in the dividend, the greater the market reaction. There is no significant difference in our results using a dividend expectations model based on analyst forecasts, and our results are robust to possible confounding effects when dividend and earnings announcements occur in close proximity. (Pettit, 1972) In the context of the Sri Lankan capital market, Bandara (2001) studied the information content of dividend announcements with a sample of 123 events relating to 37 companies, from 1993 to 1998, using the methodology..