The Effect of Dividend Announcements on Stock Returns of Companies Quoted on the Nairobi Securities Exchange
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Date
2015-10Author
Mohammed, Seif M
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
In an efficient market of the semi strong form stock prices of firms reflect all publicly
available information. This implies that investors will not gain abnormal returns from the
market. This further implies that dividend announcements will have no effect on stock
returns in a semi strong form efficient market. There are varied results on the studies
done on the effect of dividend announcement and stock returns at the Nairobi Securities
Exchange. The objective of this study was to determine the effect of dividend
announcement on stock returns of firms quoted at the Nairobi Securities Exchange. The
study employed the event study methodology. An 11 day event window was used, 5
days before the announcement, 5 days after the announcement and the event day being
day 0. Out of a population of 61 companies quoted at the NSE a sample of 15 companies
were selected that constantly announced dividends on a yearly basis. The study period
was 2012- 2014. Data was collected from the NSE listing services. Abnormal returns
were first determined by using the market model whereby daily stock returns was
regressed with the corresponding market return on the estimation period then deducting
expected returns from the daily returns. The average abnormal returns and the cumulative
average abnormal returns were calculated and graphs plotted for each year and for the
whole study period. Data was analyzed using MS Excel and SPSS. The significance of
the AAR and CAAR for each years 2012, 2013 and 2014 was tested. Then the
significance for the AAR and CAAR for the whole period 2012-2014 was also tested.
The empirical results showed varied results with the overall results suggesting that there is an effect of dividend announcements on stock returns at the NSE hence implying that the NSE market is not of the semi-strong form efficient.
Publisher
University of Nairobi