| dc.description.abstract | Abstract
The objective of the study was to analyze the influence of dividend and earnings
announcement on stock prices and hence shareholders wealth in the Kenyan economy.
The study investigated whether change in dividend announcement leads in a change in
stock prices. The time period was 2008-2012 for 10 selected companies that constantly
announced dividends and share price in the Nairobi Stock Exchange and it analyzed the
trend of dividends and earnings. Data was collected from Annual reports and share price
schedules obtained from the NSE and were analyzed using mathematical models which
included the cumulative abnormal return and through the use of Statistical Package for
Social Science (SPSS). Academic literature suggests that dividend payments should have
insignificant impact on shareholders' value on the absence of taxes and market
imperfections. Hence, companies should invest excess funds in the positive net present
value projects instead of paying out them to the shareholders. Literature also suggests that
market valuation of stocks depends on the expected future dividends. If company pays
out all of the earnings, funds for future investment will decrease and dividend may not
increase in the future. Moreover, when dividend is taxable, paying out more cash would
increase the shareholders tax liability. From the study increase and decrease in dividend
payments have no major impact on stock prices of firms. Announcement of increase in
dividend payments tends to be related with increase in stock price and announcement of
decrease in dividend payments tends to be associated with decrease in stock price around
the time of dividend announcement. Such market process is known as dividend
announcement effect. The results of the study showed that there is less influence of
dividends and earnings announcement on shareholders' value. | en_US |
