Exploration of the Influence of Dividend Announcements on a Firm's Stock Prices - An Empirical Study

For decades, the question of whether dividend announcements influence firms' stock prices has been the focus of debates in academia and amongst practitioners.While some notable scholars have found that dividend announcements cause stock prices to move, others suggest otherwise.To this end, this study critically reflects on the existing body of literature that discusses contemporary arguments on the influence of dividend announcements on stock prices and empirically tests the validity of existing findings within the United Kingdom context, using one of the FTSE 100 companies operating in the pharmaceutical industry as a case study.To unfold the crux of the discourse, the study adopts an event study methodology, underpinned by the efficient market hypothesis, to measure stock returns over specific periods.This methodology enabled the creation of a platform to examine short-term stock price reactions to a specific firm's dividend announcements over the chosen period.The data collected in the process were subjected to rigorous regression analysis for in-depth study.To empirically test the preceding findings, adjustments were made for other related factors beyond dividend announcements.The study found insufficient evidence to claim that dividend announcements did not impact stock prices during the period examined.The study made a significant contribution to existing debates on the influence of dividend announcements on stock prices by providing empirical evidence on the extent to which dividend announcements may or may not influence firms' stock prices.