Semi-strong form efficiency : market reaction to dividend and earnings announcements in Malaysian Stock Exchange

This study focuses on the announcement effect of both dividend and corporate earnings on stock prices to examine evidence of semi-strong form efficiency in Malaysian Stock Exchange. A sample of 120 companies listed on the Main Board of Bursa Malaysia that announced the final dividends in their fourth financial quarter was selected covering a time period from January 1, 2006 to November 30, 2006. The study results support the information content of dividend theory that increasing dividend announcements, on an average, earn positive abnormal return, while decreasing dividend announcements are associated with negative abnormal return. Based on the market reaction to both dividend and earnings announcements, this study concludes that both dividends and earnings play a significant role as signaling effects of the future prospects of the firm, with the dividends effect proving to be significantly stronger than the earnings effect. The results provide some evidence of semi-strong form efficiency in the Malaysian stock market, where stock prices adjust in an efficient manner to dividend and earnings announcements.