The Effect Of Dividends Announcements On Stock Prices Among Commercial Banks In Kenya Listed At Nairobi Securities Exchange

Abstract

The study evaluates dividend announcement effects on stock prices among commercial banks in Kenya, particularly those listed in the Nairobi Securities Exchange (NSE). The study demonstrates different theories and analyses the effects of dividends on stock prices: the Efficient Market Hypothesis, the information Content of dividend hypothesis, dividend irrelevance theory and bird-in-hand theory. Furthermore, the study aimed at three objectives; 1) to establish whether the announcement of dividends leads to abnormal stock returns among commercial banks listed at NSE, 2) to give a theoretical explanation of the effect of stock prices, and 3) to identify the different commercial bank's dividend announcement and their effect on their stock prices. To realize the mentioned objectives, the study hypothesized; that ‘dividend announcement impacts the stock prices of commercial banks in Kenya.’ An event study is applied as a research design, demonstrating the statistical techniques on how stock prices are affected by dividend prices. Data collection involved both secondary data and historical datasets of the banks stock prices extracted from the NSE. Furthermore, the analysis involved descriptive analysis of the dataset, and the scatter plot analysis demonstrated the stock trends before and after the dividend announcement. The analysed banks show a similar trend; most of the stock prices of the analysed bank indicated an increase after the dividend announcement.