Market differential reaction to profit warning announcements and dividend decrease : an empirical analysis of the Nairobi Securities Exchange
Date
2014
Authors
Mitau, Carol Betty Ndanu
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The main aim of the study was to investigate the market differential reaction to profit warning
announcements and dividend decreases by carrying out an empirical analysis of the Nairobi
Securities Exchange. To achieve this objective, an event study was employed over a window of
11 days consisting of 5 days before and 5 days after the announcement of both events. The
sample consisted of 11 companies that had issued profit warning announcements and had
dividend decreases over the period 2002 to 2012. There were 25 observations of companies that
issued profit warnings and 55 observations of companies that had a decline in their final dividend
between the periods 2002 to 2012. Abnormal returns were calculated using the market adjusted
model and tests of significance conducted on them.
The study found that the average abnormal returns on the day before the profit warning
announcement and the day of the announcement were statistically significant at the 5% level
while those on the first day after announcement were significant at the 10% level. On the other
hand, the average abnormal returns the day before the dividend decrease, the third day and were
statistically significant at the 5% level while the rest were significant at the 10% level. The
results showed that at the Nairobi Securities Exchange, profit warning announcements and
dividend decreases are generally associated with negative average abnormal returns. The Mann-
Whitney Rank Sum test was run so as to determine whether there is a statistical significant
difference between the average abnormal returns elicited by the two events. The test concluded
that there is no statistical significant difference in median average abnormal returns between
profit warnings and dividend decreases.
Description
A Research Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Commerce
Keywords
Nairobi Securities Exchange, Business, Dividends