The Effect of Dividend Announcement on Share Price Changes for Companies listed at Nairobi Securities Exchange, Kenya

Abstract

The study sought to determine the nature of relationship between Dividend per Share and Share Price Changes, and the rate at which Share Prices reflect Dividend Announcement information for stocks traded at the Nairobi Securities Exchange. The target population was all the 57 companies listed at the Nairobi Securities Exchange as at 31^st December, 2010. Purposive sampling was used to select a sample of four companies. The event study methodology was used to determine the effect of Dividend Announcement on Share Prices. Market Adjusted Abnormal Returns (MAAR) and Cumulative Abnormal Returns (CAR) around the event day were calculated using the Market Adjusted Abnormal Return model. Secondary data was obtained from Nairobi Securities Exchange. Correlation and t-statistic were used in data analysis.The study found negative relationship between Dividend Announcements and Share Price changes in companies quoted at Nairobi Securities Exchange. The study establishes the basis for the companies’ management to formulate their dividend policy and also provides information to investors to make right judgment in interpreting dividend announced by companies quoted at Nairobi Securities Exchange.

Key Words: Dividends, Share price