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

Kevin Campbell (Department of Accounting and Finance, University of Stirling, Stirling, UK)
Chijioke Ohuocha (Financial Markets, Thomson Reuters, Dartford, UK)

Managerial Finance

ISSN: 0307-4358

Article publication date: 22 February 2011



The purpose of this paper is 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.


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. A sample is broken down based on the timing of announcements and on the frequency with which the announcing companies' shares are traded. The authors also examine the information content of stock dividends by applying the χ2 technique to test the level of association between earnings, cash dividends and stock dividends.


The findings suggest 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.


This paper adds to the very limited academic research on the stock market reaction to stock dividend announcements in Nigeria.



Campbell, K. and Ohuocha, C. (2011), "The stock market reaction to stock dividends in Nigeria and their information content", Managerial Finance, Vol. 37 No. 3, pp. 295-311.



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