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Market Reaction To Dividend Initiation Announcements on the Ghana Stock Exchange: The Case of Industrial Analysis

Author

Listed:
  • Yakubu Awudu Sare

    (Department of Banking and Finance, School of Business and Law, University for Development Studies, UPR 36, Wa-Ghana)

  • Seyram Pearl Kumah

    (Department of Banking and Finance, Ghana Baptist University College, PMB, Kumasi- Ghana)

  • Andrews Salakpi

    (Department of Accountancy, School of Business and Law, University for Development Studies, UPR 36, Wa-Ghana)

Abstract

This study examines the market’s reaction to dividend initiation announcements. In particular, it considered the magnitude of abnormal returns during the days that surround announcements of dividend initiation. This study expects to reveal whether dividend initiation is important to investors on the Ghana Stock Exchange. It also expects to reveal whether the type of firm’s industry has influence on the investors’ investment decision. This is accomplished by measuring the abnormal returns before, during and after dividend initiation announcements. Using an event study approach, the evidence shows that dividend initiation announcements are greeted positively by investors. Industry based analysis is made to ascertain if firms in different industries react differently to dividend initiation announcement. The industries included: manufacturing, financial service and the other industries. The results suggest that firms in the manufacturing industry experience stronger investors’ reaction than firms in the other industries.

Suggested Citation

  • Yakubu Awudu Sare & Seyram Pearl Kumah & Andrews Salakpi, 2014. "Market Reaction To Dividend Initiation Announcements on the Ghana Stock Exchange: The Case of Industrial Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(4), pages 440-450, April.
  • Handle: RePEc:asi:aeafrj:2014:p:440-450
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    References listed on IDEAS

    as
    1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    2. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    3. Haruna Issahaku & Yazidu Uztarz & Paul Bata Domanban, 2013. "Macroeconomic Variables and Stock Market Returns in Ghana: Any Causal Link?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(8), pages 1044-1062, August.
    4. Jin, Zhenhu, 2000. "On the differential market reaction to dividend initiations," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(2), pages 263-277.
    5. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    6. Mohammed Amidu & Joshua Abor, 2006. "Determinants of dividend payout ratios in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 7(2), pages 136-145, March.
    7. Asquith, Paul & Mullins, David W, Jr, 1983. "The Impact of Initiating Dividend Payments on Shareholders' Wealth," The Journal of Business, University of Chicago Press, vol. 56(1), pages 77-96, January.
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