Influence of Dividend per Share on Idiosyncratic Volatility of Stock Returns among Listed Firms in Kenya
Idiosyncratic volatility has always been ignored in asset pricing, this is due to capital asset pricing model’s suggestion that idiosyncratic volatility is diversified away since investors hold a proportion of the well diversified market portfolio. In reality however, this is not always the case. Studies have shown that investors do not always hold well diversified portfolios and idiosyncratic risk is priced to compensate investors for their inability to hold the market portfolio, therefore the main objective of the study was to establish the effect of financial statement information on idiosyncratic volatility of stocks return among listed firms in Kenya. Idiosyncratic volatility was the dependent variable while independent variable was dividend per share (DPS). Correlational and descriptive research design were used, the study also used census technique and target all 39 listed companies that existed and their shares were actively traded at the Nairobi securities exchange (NSE) from the year 1998 to 2017. Descriptive as well as inferential statistics were generated using STATA. The study employed a dynamic panel data regression model, the analysis of variance (ANOVA) was used to reveal the overall model significance, the calculated F-statistic was compared with the tabulated F-statistic and a critical p-value of 0.05 was used to determine whether the overall model is significant. The null hypotheses was rejected. Based on the findings, the study concluded that, dividend per share has a significant relationship with Idiosyncratic Volatility of stock returns among listed firms in Kenya. The study recommended for management in the listed firms to focus dividend per share on their strategic decision-making. This indicator will further guide in expanding the interpretation of the financial dynamics in the listed firms at the NSE and other related firms.
Keywords: Dividend per Share, Idiosyncratic Volatility, Stock Returns, NSE & Kenya
Al-Farah, Almeri and Shanikat (2014).The Accounting Variables’ Ability in Explaining the Volatility of Stock's Price: The Case of Amman Stock Exchange, European Journal of Management.
Amadi, S. N. and Odubo T. D. (2005): Macroeconomic variables and stock prices, casuality analysis, the Nigerian journal of economic and management studies.
Ang, A., Hodrick, R. J., Xing, Y., and Zhang, X. (2009). High idiosyncratic volatility and low returns: international and further U.S. evidence. Journal of Financial Economics.
Bergh, D. and Ketchen,D ( 2014) Signaling Theory and Equilibrium in Strategic Management Research: An Assessment and a Research Agenda. Journal of Management Studies 51:8.
Creswell, W. (1994), Research Design: Qualitative and Quantitative Approaches, Sage: Thousand Oaks.
De Medeiros and Lago (2014). Disclosure of Accounting Information and Stock Return Volatility in Brazil. Research Gate. Sao Paulo. Brazil
Deloite Plus (2015). IFRS in your pocket 2015, Deloitte IFRS Publications
Drew, M. Naughton, T. (2004). Is idiosyncratic volatility priced? Evidence from the Shanghai Stock Exchange. International Review of Financial Analysis.
Easterbrook, F.H. (1994). Two Agency-cost Explanations on Dividends. American Economic Review, 74.
Fernanda, M. and Pinto (2012). The Relationship between Idiosyncratic Risk and Returns in the Brazilian Stock Market, Pontifical Catholic University of Rio de Janeiro. Brazil.
Francis J. and K. Schipper (1999): Have financial statements lost their relevance? Journal of Accounting Research.
Frees,E ( 2004). Longitudinal and panel data analysis and application in the social science, Cambridge University press.
Fu, F. (2008), “Idiosyncratic risk and the cross-section of expected stock returns. “ Journal of Financial Economics, Vol.91, Issue1.
Gujarati N. (2003) Basic econometrics, McGraw-Hill international editions: Economic series 4th edition McGraw Hill.
Hashemijoo, M. and Ardekani, M. (2012). The Impact of Dividend Policy on Share Price Volatility in the Malaysian Stock Market, Journal of Business Studies Quarterly.
Huang,C (2014) Analysis on Financing Difficulties for SMEs due to Asymmetric Information School of Management, Guangdong University of Technology, Guangzhou, China. Global Disclosure of Economics and Business, Volume 3, No 2.
Hussainey, K. and Mgbame, C. (2011). Dividend policy and share price volatility: UK evidence. Journal of Risk Finance.
Kihara D.G (2011).The relationship between dividends announcements and return on investments: case study of companies quoted at NSE. University of Nairobi.
Macharia, (2013). Effect of financial performance indicators on shareholders’ value among listed commercial banks in Kenya, IJMBS Vol.3. July 2013. JKUAT.
Maina J. (2009). An empirical investigation of stock returns reaction around earnings announcements for quoted companies at NSE. MBA project, University of Nairobi.
Malkiel, B. and Xu Y. (2003) Investigating the Behaviour of Idiosyncratic Volatility. Journal of Business.
Malkiel, B., Xu, Y. (2006), Idiosyncratic Risk and Security Returns, Working paper, Princeton University.
Malkiel, Burton G., and Xu, Y. (2006), idiosyncratic risk and security returns, working paper, University of Texas at Dallas.
Mandal, N. (2013) Sharpe’s single index model and its application to construct optimal portfolio: an empirical study. Great Lakes Center for management research, Vol.7, No.1.
Miller, M. and F. Modigliani, (1961). Dividend policy, growth, and the valuation of shares. Journal of Business 34.
Milton, Queensland, OR CPA Australia (2016) Accounting Handbook 2016, Pearson Education Australia.
Naceur, B. andNachi, W. (2007). Does the Tunisian accounting reform improve the value relevance of financial information? Afro-Asian Journal of Accounting and Finance.
Nikkinen, J., Omran, M. M., Sahlström, P., & Äijö, J. (2008). Stock Returns and Volatility Following the September 11 Attacks: Evidence from 53 Equity Markets. International Review of Financial Analysis, 17, 27-46.
Pastor, L. and P. Veronesi. (2003). Stock Valuation and Learning about Profitability. Journal of Finance.
Poitevin, M. (1989) “Financial Signaling and the “Deep-Pocket” Argument” The RAND Journal of Economics 20(1)
Sharpe F. (1964). Capital Asset Prices, Journal of Finance, September 1964, pages 42- 442.
Stock return volatility, journal of accounting research (studies on accounting information and the economics of the firm).
Tran, N. and Nguyen, T. (2015) Market Efficiency and Idiosyncratic Volatility in Vietnam. School of Finance, University of Economics Ho Chi Minh City, Vietnam. International Journal of Business and Management; Vol. 10, No. 6;
Tuli, Nishi and Mittal, R.K. (2001). Determinants of Price-Earnings Ratios. Finance India.
Waithaka, A. (2012) The relationship between working capital management practices and financial performance of agricultural companies listed at the NSE. University of Nairobi.
Wang and Chang (2008) The Association Between Accounting Information Disclosure and Stock Price, National Taipei University. Taiwan
Wang, J., Fu, G. and Luo, C. (2013). Accounting Information and Stock Price Reaction of Listed Companies; Empirical Evidence from 60 Listed Companies in Shanghai Stock Exchange, Journal of Business & Management.
Williams, N. Grajales, C. and Kurkiewicz, D. (2013) Practical assessment, Research and evaluation. Assumptions of Multiple Regression: Correcting Two Misconceptions. A peer-reviewed electronic journal. Volume 18, Number 11.
Wilson (2010) Structured research approach with a sample of the population. Boston: Irwin McGraw-Hill
Woo C. (1981). Market share leadership –Does it always pay off? Proceedings of the Academy of Management.
Wood F, and Sangster (2012) Frank Woods’s business accounting 1, 12th edition, Pearson Education Limited.
Wood, F. and Alan S. (2005). Business Accounting 1 (10th ed.).London: Prentice Hall.
Wooldridge, J.M., (2007), Econometric Analysis of Cross Section and Panel Data (second ed.) MIT Press.
Xing, Y. and Zhang, X. (2006). The cross-section of volatility and expected returns. Journal of Finance, 61 (1), 259-299.
Yang, L. (2008). Making Strategy Work: A Literature Review on the Factors Influencing Strategy Implementation. ICA Working Paper 2/2008. Lugano Switzerland Institute of Corporate Communication.
Yu, H., and Huang, Y. (2005). A Positive Analysis on the Relationship between Stock Prices of Shanghai Market and Company Financial Report. Commercial Research.
Zhou, J. (2004). Analyzing the Dynamic Relationship between Stock Price and the Earnings by Using the Time Series. Modern Finance and Economics.