The Effect of Dividend Announcement on Prices of Stocks Listed at Nairobi Securities Exchange
Abstract
Dividend statement has remained the topic of concern for scholars and for professionals.
The worth of a firm‟s shares is frequently employed as a hint of the vigor and the total
well-being of a firm. The worth of stocks is regularly determined by prospect of
company‟s returns. The overall aim of this research was to establish the impact of the
announcement of dividend with respect to prices at the NSE. Specifically, this involved
evaluating the effect that dividend declaration has on stock returns for companies listed
within each segment, from 2010 to 2015, on the day of declaration and subsequent to the
day of the declaration. In addition, the research evaluated the effect on stock prices and
stock returns for firms listed within all categories of the NSE before and after the
announcement of dividends. Finally, the study examined the effect of the declaration of
dividend on stock returns after the actual dividend payment date. This research involved
survey of sampled companies as listed at NSE, the stock returns data for some window
around the event date of interest, and pooling the resulting remarks to determine the
direction and significance of the change in prices of the stocks. The targeted number of
companies for this research was the 67 firms on the NSE listing as of 10th September
2016. Further, the study grouped the population into 12 strata whereby 32 firms were the
samples selected at random. Consequently, this research used already existing statistics
from the NSE records. The cost of shares and dividends were acquired from the NSE 5
years guidebook that give showcases the performance of the firms (financially) starting
from the year 2010 to 2015. Finally for data analysis, the research employed day by day
records to put the event study at thirty (30) days prior to and thirty (30) calendar days
subsequent to the dividend declaration time. Hence, the study established that average
abnormal rate of returns were generally negative prior to the announcement date and
positive after the date of declaration. There was a general decrease in the aggregate
abnormal rate of returns before the dividend announcement date leading to a downward
sloping curve and a general increase after the dividend announcement date leading to an
upward sloping curve. The study also revealed that the declaration of the dividend
affected return on stocks of companies in the NSE listing. It was observed that
shares returns are positive before announcement of dividend and negative in the
immediate days following the announcement, hence declaration of dividend has a positive
impact on returns of stock in companies in the NSE listing. It can also be concluded that
the Nairobi Securities Exchange market reacts to new information such as dividend
announcement. A conclusion that was made from the study is that the NSE market
responds to new data such as the declaration of dividend. This study has
recommendations arguing that the Board of Directors and the Management of listed firms
make more frequent dividend announcements.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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