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Investigating the Effects of Dividends Pay-out on Stock Prices and Traded Equity Volumes of BSE Listed Firms

Author

Listed:
  • Ishmael Radikoko
  • Emmanuel Ndjadingwe

    (University of Botswana)

Abstract

The main objective of this study is to examine the effect of dividend pay-out on the prices of stock in Botswana’s equity market as well as the effect of traded volumes of such stocks. Other objectives of the research are to determine the optimal pay-out ratio based on the profits of the firm and to determine the optimal time to declare and pay dividends. We use quota-sampling technique and selected 5 companies from the 22 domestic listed companies in the Botswana Stock Exchange. The companies under consideration are Barclay Bank, RDCP, Chobe, Engen and Sefalana Plcs. These companies are chosen based on the availability of daily closing trading information for the past five years and easiness to get information to use for our study that includes dividends pay-outs, profits made, volumes traded, etc. The result of this study reveals that there is a direct relationship between dividend announcement, ex-dividends, dividend pay-out ratio and volume of stock traded and the stock price in Botswana. Furthermore, the study concludes that there is a direct relationship between change in dividends and change in dividend per share. Lastly, the finding reveals that most of the companies sampled pay dividends between December and March. We recommend that companies should have an optimal dividend policy as this have been proven to increase firm value. We also recommend that firms should announce dividends around December to March to counter the end of year effect that usually suppresses stock prices.

Suggested Citation

  • Ishmael Radikoko & Emmanuel Ndjadingwe, 2015. "Investigating the Effects of Dividends Pay-out on Stock Prices and Traded Equity Volumes of BSE Listed Firms," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 1(4), pages 24-37, October.
    • Handle: RePEc:mgs:ijoied:v:1:y:2015:i:4:p:24-37
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    References listed on IDEAS

    as
    1. Fayez A. Elayan & Jingyu Li & Maureen E. Donnelly & Allister W. Young, 2009. "Changes to Income Trust Taxation in Canada: Investor Reaction and Dividend Clientele Theory," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5‐6), pages 725-753, June.
    2. Fayez A. Elayan & Jingyu Li & Maureen E. Donnelly & Allister W. Young, 2009. "Changes to Income Trust Taxation in Canada: Investor Reaction and Dividend Clientele Theory," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5-6), pages 725-753.
    3. Bajaj, Mukesh & Vijh, Anand M, 1995. "Trading Behavior and the Unbiasedness of the Market Reaction to Dividend Announcements," Journal of Finance, American Finance Association, vol. 50(1), pages 255-279, March.
    4. H. Kent Baker & Bin Chang & Shantanu Dutta & Samir Saadi, 2012. "Why Firms Do Not Pay Dividends: The Canadian Experience," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 39(9-10), pages 1330-1356, November.
    5. John Capstaff & Audun Klæboe & Andrew P. Marshall, 2004. "Share Price Reaction to Dividend Announcements: Empirical Evidence on the Signaling Model from the Oslo Stock Exchange," Multinational Finance Journal, Multinational Finance Journal, vol. 8(1-2), pages 115-139, March-Jun.
    6. Kim, Sangphill & Rui, Oliver M & Xu, Peter, 2002. "Risk Shift Following Dividend Change Announcement: The Role of Trading Volume," Review of Quantitative Finance and Accounting, Springer, vol. 19(1), pages 45-63, July.
    7. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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    Cited by:

    1. Andrey Kudryavtsev, 2017. "The Effect of Stock Return Sequences on Trading Volumes," IJFS, MDPI, vol. 5(4), pages 1-15, October.
    2. Beata Szetela & Grzegorz Mentel & Yuriy Bilan & Urszula Mentel, 2021. "The relationship between trend and volume on the bitcoin market," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(1), pages 25-42, March.

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    More about this item

    Keywords

    Dividends; Dividend-Pay-out ratio; Traded Volumes and Equity Prices;
    All these keywords.

    JEL classification:

    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General

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