Capital Market Efficiency and the Effects of Dividend Announcements on Share Prices in Nigeria

Abstract

An efficient market is one in which prices fully reflect available information. An implication of an efficient market is that no excess returns can be made from this information because current prices already reflect the information. However, excess returns (if any) should not be statistically significant from zero (Fox and Opong, 1999). The overall aim of this study is to test if the Nigerian stock market efficiently reacts to dividend announcements in price adjustments. This study extends and improves on previous studies by assessing the speed with which share prices adjust to the information contained in dividend announcements using daily data on the Nigerian stock market. The total number of announcements examined in the Notice to Dealing Members' File of the Nigerian Stock Exchange from 1991 to 1999 totalled 990. The study covered only 595 cases of annual dividend announcements during this period. To determine the short-run reactions to dividend, the author calculated market adjusted buy-and-hold returns for the samples for the three-day event period (that is from the day before the announcements to the day after), for the 21-day and 61-day event windows. The results revealed that there were excess returns and the cumulative excess returns were significant for 30 days before and until 25 days after dividend announcements for dividend paying firms. It points to the fact that the Nigerian stock market is not semi-strong efficient.Re´sume´: Un marche´est efficient si les prix actuels refle`tent toute l'information publique disponible. Un marche´efficient suppose que cette information ne peut eˆtre exploite´e pour re´aliser des gains, parce que les prix actuels la refle`tent de´ja`. Dans le cas ou`des gains peuvent o˜tre re´aliser, ils ne peuvent en aucune fac¸on eˆtre sensiblement supe´rieurs az e´ro, d'un point de vue statistique (Fox et Opong [1999]). La pre´sente e´tude a pour objectif global de ve´rifier si la Bourse des valeurs nige´riane est suffisamment re´ceptive aux de´clarations de dividende, lors de l'ajustement du cours d'une action. Elle vient comple´ter et ame´liorer des e´tudes ante´rieures sur cette question, en e´valuant la vitesse a`laquelle le cours d'une action s'adapte aux informations contenues dans des de´clarations de dividende qui utilisent les donne´es publie´es quotidiennement sur le marche´boursier nige´rian. Quelque 990 de´clarations figurant dans des avis de dividende e´mis entre 1991 et 1999, et classe´s dans les dossiers des courtiers membres de la Bourse des valeurs nige´riane, ont e´te´examine´s au total. L'e´tude ne porte que sur 595 de´clarations annuelles de dividende effectue´es durant cette pe´riode. Pour de´terminer la re´ceptivite´a`court terme du marche´boursier nige´rian a`l'e´gard de ces 595 de´clarations de dividende, l'auteur a calcule´-sur une pe´riode de trois jours (allant de la veille au lendemain du jour ou`les de´clarations ont e´te´effectue´es -les revenus ajuste´s des actions relie´es au marche´immobilier, achete´es et mises en sauvegarde, pour les guichets ...

Stock Price Response to Earnings Announcements: Evidence From the Nigerian Stock Market

“…Olowe, 1998;Oludoyi 1999;Osei, 2002;Adelegan 2003Adelegan , 2009). Studies examining the informational efficiency of the Nigerian stock market, in particular, failed to find evidence of efficiency, and thus conclude that the Nigerian stock market is not informationally efficient (e.g.…”

Reaction of Stock Prices to Dividend Announcements and Market Efficiency in Pakistan

“…Below and Johnson (1996) also fail to support the semi-strong form of market efficiency for the US equity market. Adelegan (2003) conducts a study to analyze the reaction of stock prices to dividend announcements and capital market efficiency in Nigeria. He uses the standard event study methodology to test the semi-strong form of market efficiency and finds that the Nigerian stock market was inefficient in its semi-strong form.…”

Dividend Signalling And Market Efficiency In Emerging Economy: A Study of Indian Stock Market

“…Studies on various developing and emerging markets point out to mixed results. Chang and Chen (1991) and Chen et al (2002) for China, Adelegan (2003) for Nigeria, Hossain et al (2006) for Bangladesh, Pathirawasam (2009) for Sri Lanka, Irum et al (2012) and Saleem et al (2013) for Pakistan are supportive of the signalling theory. While studies by Abdullah and Rashid (2004) for Malaysian, Uddin and Chaudhary 2005and Rahman et al (2012) for Bangladesh, Akbar and Baig (2010) for Pakistan, Cooray and Wickremasinghe (2007) for India, Pakistan, Sri Lanka and Bangladesh on the other hand do not support signalling effect of dividend related events.…”