Dividend Announcements and Market Value of Shares in the Agricultural Companies Listed at the Nairobi Securities Exchange

Abstract

Abstract: This study investigated the information value of dividend payout announcements and the market value of shares in the agricultural companies listed at Nairobi stock Exchange (NSE). It used a modified market model to investigate whether Nairobi Stock Market reacts efficiently to dividend announcements in terms of price adjustment to share prices in the agricultural sector. It attempted to determine whether an announcement of dividends has any impact on the share price of the agricultural companies announcing the dividends. The study also examined potential explanation for the wealth effects surrounding dividend change announcements, value of the firms and performance in terms of its present and future prosperity. This study analyses the announcement effect of cash dividends on share prices in Kenyan capital markets. It investigated whether cash dividend announcements result in an abnormal return around the announcement day in Nairobi Stock Exchange. The abnormal returns were calculated using the market adjusted model, between t-15 and t+15 days, event windows were used to test this effect. The results indicate that the impact of dividend on dividend announcement date and few days after were positive. These results confirm the theoretical background regarding the impact of dividend on the stock prices. It shows that dividend distribution is relevant for future price determination.