Dividend Announcement security performance and capital market efficiency, the Nigeria perspective.

INTRODUCTION

The availability of information is crucial to the successful pursuance of virtually every human endeavor. However, Hirshleijer and Riley (1979) observed that in order for any particular piece of information to be beneficial to the user, it must have precise definition and value. While the definition relates to the message about the various events that may happen, the value is about the payoffs likely to be derived by acting on the message received. If a message is not understood by the people for whom it is meant, no action may be taken. If an action is taken at all, it may be a wrong one. Even when the message is understood by the people concerned, their reaction may differ from one another depending on the values perceived to be derived from acting on the message. The values derivable from the message may also be different among people depending on the message as well as the perceived net benefits or utility resulting from taking actions.

    Several actions may be taken after receiving an information. Some of the actions may be Optimal, while others may be sub-optimal. The optimal action was defined by Copeland & Weston (1983)2 as the product of the conditional probability of an event taken place given the receipt a message and the utility resulting from taking an action, given that a particular event has occurred. There is also the marginal probability of receiving a message, the optimal action taken on receiving the message and the expected utility to be derived, given the arrival of the message.

    Problems arise when economic agents fail to act on relevant information. Such in action may be due to lack of understanding of the message being put across or due to lack of resources to benefit from the information. For example, firms may release their dividend figures to the Capital market if the information contained in released dividend is not understood by the market participants and investors, appropriate portfolio adjustments may not be made through trading of shares. If on the other hand, investors react appropriately to dividend announcements by adjusting their portfolios, which in turn manifests in share price changes, firms may not understand why the market determined their firms’ share prices the way it has done, if they also do not understand the message being put across by investors. It is therefore important for both the firms and investors to understand information available in the capital market. The understanding of the available information will go a long way to enhance the quality of decision made by firms and investors.

There is no gain saying in the fact that firms take various decisions about their operation on daily basis. These decisions can however be classified into three broad categories. These are production, investment and finance decisions. These are decisions should be optimal if the intended results are to be attained. With regard to investments, firms face decisions on optimum combination of real and monetary assets to be invested with a view to establishing and maintaining the productive process necessary to produce the optimum level of output from the optimum combination of factor inputs. The third type of decision the finance decisions concern the optimum combination of resources of money capital required to finance the optimum assets investments. These three major decisions are interdependent. For instance, money capital is required to produce goods and services. Thus, the decision nexus, which should be optimal, confront firms from time to time.

Firms do not take decisions in isolation. Rather, they take cognizance of happenings in the stock markets where their long-term money capital is raised in the form of equities and / or bonds. Both the firms and investors operate in the stock markets, with the former playing the role of producers / borrowers, while the latter function as savers or investors. The adequate understanding of available information is particularly important in the stock markets where securities are traded. It is the understanding of publicly available information which determines to a large extent, whether or not securities will be appropriately priced.

The perceived value of information arising in the stock markets depends on whether or not it reveals any new thing to the market participants. If no new message is contained in the information, security prices may not be affected. It is also possible for the information arriving in the market to be underutilized. Fama (1976) aptly noted this obvious divergence between publicly available information and information utilized by the market in determining security prices in “Reply to Efficient Capital Market Comments”. The underutilization of publicly available information may be due to the inability of market participants to understand its full ramifications. It may however, be due to intervention by capital market regulations E.g. Securities & Exchange Commission or the stock Exchange. In Nigeria, the Nigerian stock Exchange regulates share pricing by imposing a cap on the movement, up or down of prices on any trading day.

There are several information generating events that affect stock prices. For example, earnings announcements, merges & acquisition announcements, dividend announcements etc. This study intends to utilize dividend announcements as the relevant information set.

CHAPTER ONE:    

Introduction

1.3    Background of the Problem  

1.4    Statement of the Problem

1.5    Objectives of the Research

1.6    Research Questions

1.7    Statement of Hypothesis

1.8    Scope  of the study and Its Delimitation

1.9    Organization of the Report

CHAPTER TWO:   

Literature Review

2.1    Evolution of the Nigeria Capital Market.

2.2    Major Participation’s in the Nigerian Capital Market

2.2.1    The Central Bank of Nigeria

2.2.2    Development Finance Institutions

2.2.3    Issuing Houses

2.2.4    Stockbroking firms

2.2.5    Securities and Exchange Commission

2.2.6    Stock Exchange

2.2.7    Share Registrars

2.2.8    Commercial Banks

2.2.9    Insurance companies and Pensims / Provident funds

2.3    Dividend

2.3.1    Forms of Dividend

2.3.2    Factors influencing Dividend Policy

2.3.3    Stability of Dividend

2.3.4    Relationship between Dividend and Share prices

2.3.5    Information content of Dividends

2.3.6    Random Walk Theory of Share Price Movements

2.3.7    Random Walk and an Efficient Stock Market

2.3.8    Varying Degrees Efficiency

2.3.9    Week form Tests or Weak form of Efficiency

2.3.10    Semi-strong form Tests and semi-strong Efficiency

2.3.11    Strong form Tests and Strong Form Efficiency

2.3.12    Implications of Efficient Market Hypothesis

2.3.13    Empirical Studies of Capital Market Efficiency in Nigeria

2.3.14    Dividend Announcement and Capital Market Efficiency.

CHAPTER THREE:    

Research Methodology

3.1    research Design

3.2    Sources of Primary & Secondary Data

3.3    Population & Sample

3.4    Data Collection Techniques

3.5    Data Analysis Technique

3.6    Hypothesis Test Statistic

3.7    Limitation of Research Methodology

CHAPTER FOUR:    

Analysis and Presentation of Data.

4.1    Presentation of Primary Data

4.2    Analysis and Presentation of Data According to Research Questions

4.3    Analysis and Presentation of Data According to hypothesis.

CHAPTER FIVE:

5.1    Summary of Findings

5.2    Conclusion

5.3    Recommendation

5.4    Suggested Research Work