The stock market reaction to stock dividends in Nigeria and their information content

The stock market reaction to stock dividends in Nigeria and their information content Purpose – The purpose of this paper is to examine whether stock dividend announcements create value for companies traded on the Nigerian stock market and to ascertain the nature of the information such announcements convey. Design/methodology/approach – A standard event study methodology, employing the market model, is applied to determine the abnormal returns both on and surrounding the stock dividend announcement date. A sample is broken down based on the timing of announcements and on the frequency with which the announcing companies' shares are traded. The authors also examine the information content of stock dividends by applying the χ 2 technique to test the level of association between earnings, cash dividends and stock dividends. Findings – The findings suggest that companies that choose their own announcement date outside the Nigerian stock exchange announcement window experience positive abnormal returns if their stock is more frequently traded and negative abnormal returns if their stock is less frequently traded. In addition, support is found for both the cash substitution hypothesis and the signalling hypothesis as explanations for the information stock dividends convey to shareholders. Research limitations/implications – The small number of companies in the “early announcement” group may not permit a definitive view to be established about the stock market reaction to early stock dividend announcements for this group of companies. Practical implications – The findings are of practical relevance to researchers, practitioners and investors interested in companies listed on the Nigerian stock market as they reveal the extent to which the shares reflect fundamental information from corporate announcements. Originality/value – This paper adds to the very limited academic research on the stock market reaction to stock dividend announcements in Nigeria. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

The stock market reaction to stock dividends in Nigeria and their information content

Managerial Finance, Volume 37 (3): 17 – Feb 22, 2011

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074351111113333
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine whether stock dividend announcements create value for companies traded on the Nigerian stock market and to ascertain the nature of the information such announcements convey. Design/methodology/approach – A standard event study methodology, employing the market model, is applied to determine the abnormal returns both on and surrounding the stock dividend announcement date. A sample is broken down based on the timing of announcements and on the frequency with which the announcing companies' shares are traded. The authors also examine the information content of stock dividends by applying the χ 2 technique to test the level of association between earnings, cash dividends and stock dividends. Findings – The findings suggest that companies that choose their own announcement date outside the Nigerian stock exchange announcement window experience positive abnormal returns if their stock is more frequently traded and negative abnormal returns if their stock is less frequently traded. In addition, support is found for both the cash substitution hypothesis and the signalling hypothesis as explanations for the information stock dividends convey to shareholders. Research limitations/implications – The small number of companies in the “early announcement” group may not permit a definitive view to be established about the stock market reaction to early stock dividend announcements for this group of companies. Practical implications – The findings are of practical relevance to researchers, practitioners and investors interested in companies listed on the Nigerian stock market as they reveal the extent to which the shares reflect fundamental information from corporate announcements. Originality/value – This paper adds to the very limited academic research on the stock market reaction to stock dividend announcements in Nigeria.

Journal

Managerial FinanceEmerald Publishing

Published: Feb 22, 2011

Keywords: Nigeria; Stock markets; Stock returns; Dividends; Information strategy

References

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