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

Abstract

Purpose -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. Our sample is broken down based on the timing of announcements and on the frequency with which the announcing companies' shares are traded. We also examine the information content of stock dividends by applying the chi-square technique to test the level of association between earnings, cash dividends and stock dividends.Findings -Our study suggests 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 study adds to the very limited academic research on the stock market reaction to stock dividend announcements in Nigeria.

Empirical Study on Semi-Strong Form Market Efficiency: Evidence from Colombo Stock Exchange

“…Consistent with the above studies, a similar study conducted by Campbell and Ohuocha (2011) Market. In addition, based on the results and considering the characteristics of the market, they suggest that these abnormalities may be due to information leakage than the market's prior anticipation.…”

“…It is important to note that the findings of this study are consistent with many of the similar empirical studies on other emerging stock markets. Similar to studies of Dhar and Chhaochharja (2008) on the Indian Stock Market, Barnes and Ma (2002) on the China's Stock Market, Olowe (1998) and Campbell and Ohuocha (2011) on the Nigerian Stock Market, Akbar and Baig (2010) on the Karachi Stock Exchange, it is found that stock prices respond positively to bonus share issue announcements. Further, consistent with the studies conducted by Olowe (1998), Akbar and Baig (2010), and Campbell and Ohuocha (2011), the findings of this study suggest that CSE is not efficient in its semi-strong form.…”

“…However, an investigation window of 51 days; including event day, 20 days before the event day and 30 days after the event day is used by Fernando and Guneratne (2009) in their research measuring abnormal returns with the application of bonus issue announcements on CSE. In the empirical study undertaken by Campbell and Ohuocha (2011) investigating the share price reaction to stock dividend announcements in Nigeria, the investigation period contains a total of 31 days, measured from day-iS to day + 15 after the stock dividend announcement (day 0). Further, Bandara (1997) applies relatively narrow investigation window of 21 days, from day -10 to day +10 relative to the announcement day (day 0).…”

“…Though Brown and Warner (1985) show that even when biases in estimate of f3 occur, it is compensated for by biases in a estimate, Campbell and Ohuocha (2011), in their investigation on the information content of stock dividends and stock price reaction to such announcements in the Nigerian Stock Exchange find that abnormal returns are significantly positive on and around the announcement day for firms with more frequently traded stocks whereas significant negative abnormal returns with less frequently traded stock.…”

Aktivitas Volume Perdagangan Abnormal

“…Normal trading range hypothesis yang diajukan Ikenberry et al (1996) beranggapan bahwa perusahaan mengeluarkan saham bonus dengan harapan harga sahamnya akan turun di harga perdagangan yang optimal. Dan yang teori paling terkenal dalam menjelaskan motif saham bonus adalah signalling theory, dimana manajer perusahaan berusaha untuk mengurangi asymmetric information mengenai prospek perusahaan di masa mendatang dengan melakukan pembagian saham bonus seperti yang dijelaskan Grinblatt et al (1984) dan McNichols & Dravid (1990) dalam Campbell & Ohuocha (2011).…”