Research Article

Stock Price Reaction to the Announcement of Fuel Subsidy Removal in Nigeria

Mohammed Aminu Bello1*
1 Department of Business Administration and Entrepreneurship, Bayero University Kano
* Corresponding author: mabello.bus@buk.edu.ng
Published: Apr, 2022
DOI: 10.67894/bbr.2022.ukueuyw0
Pages: 141-159
Views: 10
Downloads: 4

Abstract

On the 11th of May, 2016 the federal government of Nigeria announced the removal of fuel subsidy which generated a lot of arguments and several reactions in the midst of observers and market analysts as to the likely consequences of such an action to the Nigerian economy on the market value of listed firms in Nigeria. This study aims to empirically investigate the reaction of the stock prices to the sudden announcement of the removal of fuel subsidy in the Nigerian Stock market. Data for the study were collected from the Nigerian Stock Exchange daily official list covering both the 190 days estimation period and the 35 days event window. The standard event study methodology was used on a sample of 76 firms that cut across all the various sectors of listed firms in the Nigerian Stock Exchange. The study found the event to have a significantlypositive impact on the stock market as positive cumulative abnormal returns were recorded in the market on the event day and a negative significantly cumulative abnormal return after the announcement of the fuel subsidy removal. Consequent upon the findings, thisstudy recommends, among other things that policy makers should avoid sudden announcement of policies that bothers on sensitive sectors of the economy. Such actions should be preceded by the release of information that adequately justifies such action by policymakers before it is made public. The release of such information is useful as it will help the stock market to correctly interpret the philosophy underlying the action by policy makers and will further drastically reduce information asymmetry in the market. 

Keywords

Subsidy Removal Stock Market Event Study Cumulative Abnormal Returns

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How to Cite

Bello, M. A. (2022). Stock Price Reaction to the Announcement of Fuel Subsidy Removal in Nigeria. Bayero Business Review, 6(1), 141-159. https://doi.org/10.67894/bbr.2022.ukueuyw0

M. A. Bello, "Stock Price Reaction to the Announcement of Fuel Subsidy Removal in Nigeria," Bayero Business Review, vol. 6, no. 1, pp. 141-159, April 2022. doi: 10.67894/bbr.2022.ukueuyw0

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