An Investigation Into the Reverse Stock Splits at the Nairobi Securities Exchange, Kenya

Abstract

This study investigates the need for introducing reverse stock splits at the Nairobi Securities exchange , Kenya. As most companies at the NSE have relatively large number of outstanding shares or their share prices are relatively low, the research tries to find out if the introduction of reverse splits would be welcomed by the managers of the vurious companies listed at the NSE. An e ploratory research design was used and data was collected from fifty two managers by use of a questionnaire. This methodology was used because little information is known about reverse stock splits in Kenya and hence the findings would be useful for future analysis and generation of hypotheses. A chi-square test was then carried out to analyze the data. The findings reveal that there are many advantages associated with reverse stock splits but they do not outweigh its disadvantages. However, managers would recommend their companies to reverse split so as to attract institutional investors and hence, they support the case for the introduction of reverse stock splits in Kenya. This would mean that the various institutions like the Capital Markets Authority and the Nairobi Securities Exchange responsible for regulating the securities market hold advocate for legislation that would allow the introduction of reverse stock split and hence formulate policies that will go em the process .