| dc.description.abstract | This research project sought to establish whether there was any relationship between the announcements of dividends on the share price of these companies. A sample of the twenty firms that are used to calculate the NSE 20 share index was taken and all their final dividends analyzed. In total eighty announcements were studied in categories of increase, where the cash dividend announced was higher than the previous one, no change where the dividend announce was similar to the last and decrease where the current dividend was lower than the previous one.
In the analysis, an estimation window of sixty days before the event window (eighty days before the announcement) and an event window of forty one days including the event day were established and the actual return over this period calculated using the holding period return. The alpha and beta of each announcement were then calculated using simple linear regression over the estimation window. The alpha and beta so calculated were then used to calculate the normal return over the event period. The abnormal return was then calculated by deducting the normal return from the actual return which was the cumulated over the event window and across all the cases that fell in a particular category and analysed.
The results from the analysis did indicate that there was indeed some impact on the share price of the firms on announcement of dividends. With those with decreasing dividends showing drops in returns after announcement in most years, those with no change dividend announcement indicating mixed reactions with some having decreasing returns and others increasing on the event day and with the increasing dividends leading to increasing returns after announcement. An analysis of all announcements for the entire period yielded results that indicated that despite returns declining before the event day they begun climbing again on the announcement day and sustained this trend throughout the post event period.
This cumulative trend was attributed to the fact that most of the announcements in the study period (54%) were of an increasing nature. T -tests carried out on the five year data indicated that CAR was significant (at the 5% significance level) from the sixth days before the announcement all the way to seventh day after the announcement. On testing, the null hypothesis was rejected indicating that dividend change affected share price following financial performance and dividend announcement. The results therefore indicated that the dividend signalling theory was applicable at the Nairobi Stock exchange over the period sampled | en_US |
