Title: Liquidity changes on and around cash dividend announcements: evidence from India

Authors: Sadaf Anwar; Shveta Singh; P.K. Jain

Addresses: Department of Management Studies, Indian Institute of Technology, New Delhi, India ' Department of Management Studies, Indian Institute of Technology, New Delhi, India ' Department of Management Studies, Indian Institute of Technology, New Delhi, India

Abstract: Liquidity management, especially in the wake of global financial crisis, has become a major concern for the finance managers. The research questions revolve around the choice of the firms either to maintain large cash balances or to distribute them as cash dividends. The purpose of this paper is to examine the liquidity changes on the announcement of 'pure' cash dividends using one-group pre-test post-test experimental research design. The sample consists of the BSE 500 index non-finance companies. Cash dividend announcements are viewed as positive signals by shareholders and they prefer to receive dividends for shares with more liquidity. The results support cash substitution, signalling and liquidity hypothesis of cash dividends. This is perhaps, the first study addressing the changes in liquidity on the announcement of cash dividends in Indian context. The study has implications in understanding and formulating policies that can create optimal liquidity levels and implement healthier dividend policies.

Keywords: India; liquidity hypothesis; cash substitution hypothesis; signalling hypothesis; cash dividends; liquidity changes; cash dividend announcements; liquidity management.

DOI: 10.1504/IJAF.2016.082314

International Journal of Accounting and Finance, 2016 Vol.6 No.4, pp.319 - 340

Received: 21 Dec 2015
Accepted: 15 Oct 2016
Published online: 18 Feb 2017 *

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