Efficient Market Hypothesis (EMH) and Nigerian Capital Market: An Analysis of Bonus Issues and Dividend Announcement.

Abstract The study examined the efficient market hypothesis and Nigerian capital market in relation to information contained in dividend and bonus issues announcement to ascertain the speed at which the market adjust to all the relevant available information on share prices of the listed firms in the main board market. To estimate the speed of adjustment of daily share prices of 33 sampled firms listed in the market in semi-strong form, market model developed by Fama (1969) is employed. From the findings, the study reveals positive and significant abnormal returns (ARs) for most of the days around the 41-days event window (-20, 0, +20). The evidence shows that share prices of main board market do not adjust quickly to dividend and bonus issues announcements thus, suggesting that the market is not efficient in semi-strong form. The study also investigated if the market anticipated the information contained in the event by examining the share price movement of the sampled firms around the estimation window. The results revealed that the abnormal returns (ARs) and average abnormal returns (AARs) of most of the days in the estimation window tend to stay significantly negative at 5% and 1% level. The significant and negative ARs and AARs that surround the estimation window implies that event actually do convey information to the market, but the market was unable to adjust quickly to the conveyed information due to the continuous drift in average abnormal returns (AARs) over the estimation window, suggesting serious anticipation of the information. The estimation of cumulative average abnormal returns (CAARs) around the event window to ascertain the effect of the event announcement on the firm’s values appears to be positive and statistically significant at 5% and 1% level for almost all the days. Hence, since the CAARs are different from zero, the information contained in event has no effect on the firm’s value. Further investigations were conducted to ascertain the speed of adjustment of share prices of those firms that declared simultaneously a minimum of N1.25k dividend and 1:10 bonus issues (i.e. blue-chips stock “A”), and those firms whose dividend and bonus issues declaration are less than N1.25k and 1:10 (i.e. blue-chips stock “B”). The findings suggest that share prices of blue-chips stock “A” respond to the announcements faster than share prices of blue-chips stock “B”. Hence the market remains informational inefficient. Based on the findings, share prices of main board market do not adjust speedily to incorporate both past and publicly available information contained in simultaneous dividend and bonus issues announcement. Consequently, this could increase the height of massive speculations of share prices of the firms in the main board market, information asymmetry and insider abuse, which is found to be predominant in the market. This has caused imbalance of power in transactions and sometimes makes transaction to go awry due to investor’s loss of confidence and feeling of insecurity. Therefore, the regulatory authorities should strengthen their efforts to ensure compliance to insider trading laws by setting a viable and efficient monitoring team for proper surveillance of market activities and prosecution of offenders. This could facilitate the restoration of the investors’ confidence and the stabilization of the business environment.