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

Abstract

This study investigated the information value of dividend payout announcements and the market value of shares in the agricultural companies listed at Nairobi Securities Exchange (NSE). The event study of agricultural companies listed in the Nairobi Securities Exchange between 2009 to 20012 was done, secondary data collected from NSE database was also used, and the data obtained was analyzed using a modified market model to investigate whether Nairobi Securities Market reacts efficiently to dividend announcements in terms of price adjustment to share prices in the agricultural sector. The study investigated whether an announcement of dividends has any influence on the share prices of the agricultural companies announcing the dividends. It investigated whether cash dividend announcements for Agricultural companies result in an abnormal return around the announcement day in Nairobi Securities 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 share prices. It shows that dividend distribution is relevant for future price determination. It therefore supports the hypothesis that dividend announcements have information content which influences the prices of shares.