dc.description.abstract | Dividend changes convey new information about a firm’s future profitability thereby
positively affecting a firm’s share return. Changes in a firm’s stock return may also be
due to the governance function of dividends. The effect of announcement of a
dividend on share return can be seen in two standpoints: if the dividend that is
announced is up to expectations of shareholders, the market return of the shares will
be positively affected. Whereas, if the dividend that is announced is not up to
expectations of the equity investors, the market return of the shares will be negatively
affected. The objective of this study was to investigate the effect of changes in
dividend announcement on the share returns of firms listed at the Nairobi Securities
Exchange.
This study employed an event study methodology where the of effect of changes in
dividend announcement on the share returns of firms listed at the Nairobi Securities
Exchange was investigated for a period of 61 days in pre and post dividend
announcement date. The study covered the period between 2010 and 2014 with a
sample size of 5 companies. Secondary data collected from NSE on the daily stock
prices of the 5 companies and the NSE 20-Shareprice index for 30 day pre and 30 day
post dividend announcement date was used.
This study established that the events of dividend announcement cause a general
increase in share return, the companies’ share returns exhibits erratic positive returns
before and after the dividend announcement and that in terms of regression, the test of
significance revealed that in overall dividend announcement has significant effect on
stock returns of firms listed at the Nairobi Securities Exchange. In conclusion, this
study established that the Nairobi Securities Exchange market reacts to new
information such as dividend announcement on some years during the study period.
Therefore the study recommended that to reduce abnormal reaction of share prices
caused by speculative trading by retail investors, the public should be educated on the
dividend reported as financial performance of the companies could be influenced by
the economic condition prevailing at that time. | en_US |