An empirical investigation into market efficiency and the effects of Cash dividend announcements on share prices of companies listed on the Nairobi stock exchange
Abstract
An efficient market is one in which prices fully reflect available
information. An implication of an efficient market is that no excess returns
can be made from this information because current prices already reflect
the information. However, Excess returns if any should if any should not
be statistically significance from zero (Fox and Opong, 1999).
This study inves,ates if the Nairobi Stock Exchange efficiently reacts to
dividend announcements in price adjustments. The study extends and
improves on previous studies by assessing the speed with which share
prices adjust to the information contained in cash dividend announcement
using Daily data on Nairobi Stock Exchange from 2000 to 2004.The sample
consists of firms making up the Nairobi Stock Exchange(NSE) 20 share
Index.
To determine the short term reactions to dividend announcements the
researcher calculated market adjusted buy and hold returns for the
samples for the twenty one day event period (t.b.atis from the day before
the announcement to the day after) The results reveal that cumulative
market adjusted returns to be significant for ten days before and ten days
after the announcement for dividend paying firms .This indicates that
share prices are indeed responsive to cash dividends.
Ii)
However the dividend anticipation by the market, as reflected by price
adjustments before and after dividend announcement was poor most
probably as a result of inadequate information with regard to both
company prospects and dividend policy. Consequently, information
insufficiency automatically leads to market inefficiency
Sponsorhip
The University of NairobiPublisher
School of Business ( SOB )
Subject
An empirical investigation into market efficiencyCash dividend announcements on share prices of companies listed on the Nairobi stock exchange