Determinants of Abnormal Returns on the Ghana Stock Exchange

Abstract

This study examines the determinants of market’s reaction to dividend initiation announcements in Ghana. In particular, it considered the magnitude of abnormal returns during the days that surround announcements of dividend initiation. This study expects to reveal the factors that determine abnormal returns on the Ghana Stock Exchange. This is accomplished by measuring the abnormal returns before, during and after dividend initiation announcements. Using an event study approach, factors such us: the firm’s earning changes, earning volatility, dividend yield, firm’s age, institutional shareholding, firm’s size, market-to-book ratio, investment opportunities available to the firm and the industry of the firm are analyzed to ascertain if the abnormal return is dependent on them. The results suggest that older firm and firms in the manufacturing industry experience stronger and positive investors’ reaction than younger firms and firms in the other industries. The results also revealed that investors react negatively to firms that have viable investment opportunities but decide to initiate dividend payment.

Keywords: Determinants, dividend initiation, abnormal returns, GSE