Cash dividend change announcement effects on share price returns for listed companies in Kenya
Date
2013
Authors
Otieno, Pauline Atieno
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The policy of dividends has been a puzzle and knowing why companies and investors pay
attention to dividends is still problematic. The study covered the period 2005 to 2012 and
sought to establish the relationship between cash dividend change announcements and
share price returns, the kind of relationship and if share price returns were affected
differently between the periods before, during and after the Post Election Violence in
Kenya. The study also analyzed the stock price reaction of firms listed on the Nairobi
Securities Exchange that announced dividend changes before, during and after the Post-
Election violence in Kenya. An event study methodology was used to assess the reaction
of shares price returns to dividend change announcement. An abnormal performance
around the event date was also analyzed using the daily closing share prices. Results
revealed that dividend announcement had significant effect on share price returns for all
the periods (before, during and after the crisis period). Further, the type of dividend
announced had an effect on the share price returns as dividend decreases resulted to
negative returns while dividend increases resulted to positive returns. From this, it was
evident that dividend announcement had information content and the information content
had significant effect on share price returns. The findings showed that investors became
more conscious of the signals in dividends. This study will help managers in dividend
policy decisions, as a reference point for investors and assist in future research on
dividends as dividend announcement had an effect on shares and they acted as signals
affecting share prices indicating investors were aware of dividends as a signal of firms’
future earnings.
Description
Submitted in partial fulfillment of the requirements for the Degree of Master of Commerce
Keywords
Cash dividend, Share price returns, Kenya