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Dividend refers to distribution of a portion of a company's earnings, decided by the board of directors to its shareholders. Although some of the studies have reported that dividend is positively related to  Share Price  changes, others have reported inverse  relationship. There is therefore no consensus as to the nature of the relationship.  The  study sought to determine the nature of  relationship between Dividend per Share and  Share Price Changes, and the rate at which Share Prices reflect  Dividend Announcement  information for stocks traded at the Nairobi Securities Exchange. The target population was all the 57 companies listed at the Nairobi Securities Exchange as at 31stDecember, 2010. Purposive sampling was used to select a sample of four companies.  The event study methodology was used to determine the effect of  Dividend Announcement  on  Share Prices. Market Adjusted Abnormal Returns (MAAR) and Cumulative  Abnormal Returns (CAR) around the event  day were calculated using the Market Adjusted Abnormal Return model.

Secondary data was obtained from Nairobi Securities Exchange. Correlation and t-statistic were used in data analysis.  In the first objective the researcher sought to determine the  relationship between Dividend per Share and  Share Price  changes.  The researcher computed  correlation  between Dividend per Share and MAAR, and another correlation  between Dividend per Share and CAR.  Though the correlation  was  negative in both cases,  at 5% significance level, it  was only significant between Dividend perShare and CAR.  The study found  negative relationship between  Dividend Announcements and  Share Price  changes in  companies quoted at  Nairobi Securities Exchange. In the second objective the researcher sought to  determine the rate at which Share Prices reflect  Dividend Announcement  information in  Nairobi Securities Exchange.    The study found Shares  have positive returns  before  announcement of dividend and negative returns  in days immediately following the announcement. The returns revert back to positive after about fifteen days after Dividend Announcement. The study establishes  the basis for the companies’ management to  formulate  their dividend policy  and  also provides information to investors to make right judgment in interpreting dividend announced by companies quoted at Nairobi Securities Exchange.




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