Retail and institutional investor clientele effect on stock price adjustments to dividend announcement: empirical analysis of Nairobi Stock Exchange (NSE) firms

Abstract

This is an event study that aimed at establishing whether there is a significant difference in the abnormal adjustment in stock prices for retail and institutional investor firms as a result of dividend announcement. Studies already carried out on the subject of dividends conclude that stock prices react to dividend announcement. This implies that dividend announcement carry information to investors.

This study not only looks at the price reaction to dividends announcement but also the role played by the different clienteles. Ten firms listed at the Nairobi stock exchange were studied for a period of five years (2009 to 2005). The companies were divided into two categories, the first category contained firms with retail investors while the second category contained those firms with institutional investors. The dividend dates were noted, and then prices observed over an event window of twenty days, ten before the announcement of the dividends and ten after the announcement of dividends.

The research heavily relied on secondary data obtained from the Nairobi stock exchange as well as old newspapers, and internet. The study determined that there is no significance difference in abnormal adjustment in stock prices for retail and institutional investor firms as a result of dividends announcement. This implies that the effect of retail and institutional investors on stock price adjustments to dividends announcement is not significantly different.