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The response of stock prices to dividend news on the Ghana stock market: An empirical assessment

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  • Gideon Boako

    (Department of Accounting and Finance, Garden City University College, Ghana.)

Abstract

An important assumption of the signaling hypothesis is that dividend change announcements are positively correlated with share price reactions and future changes in earnings. However, Miller and Modigliani (1961)sustains that, dividend policy is irrelevant in arriving at a firm value, if the capital market is perfect. The purpose of this paper is to assess the potency of the dividend irrelevance theory on the Ghana stock market by using the Johansen-Juselius cointegration methodology on daily data of dividends, earnings and stock prices from January 2011 to December 2013. The results establish that equity prices in Ghana are not in sync with dividend announcements. However, the incorporation of earnings in the cointegration model provides varying result. The findings indicate that equity price change movements in Ghana are not responsive to dividend news.

Suggested Citation

  • Gideon Boako, 2015. "The response of stock prices to dividend news on the Ghana stock market: An empirical assessment," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 3(2), pages 78-85, April.
    • Handle: RePEc:lrc:lareco:v:3:y:2015:i:2:p:78-85
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    More about this item

    Keywords

    Co-integration; Composite index; Dividend; Equity prices.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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