Effect of Covid-19 Announcement on the Share Returns of Manufacturing and Allied Firms Listed at the Nairobi Securities Exchange

Abstract

The outbreak and rapid spread of the COVID-19 pandemic and it rigorous containment measures implemented globally have rigorously affected the level of economic activities worldwide. The global manufacturing output dropped by 6%, 11.2%, and 1.1% in the first three quarters of 2020, respectively, with industrialized economies registering the biggest drop. In the East Asia however an estimated 0.2% growth in output was registered. In Kenya, the manufacturing industry has witnessed a drop in production due to the pandemic. The study sought to ascertain the effect of the Covid-19 outbreak on the stock returns of the Nairobi Securities Exchange's listed manufacturing and related companies. The Nairobi Securities Exchange identified nine manufacturing and allied firms, which contributed secondary data for this study. The study examined the stock returns of nine publicly listed manufacturing and associated companies ten days before and ten days after the President took the first actions to curb the virus's spread. T-tests were used to examine the impact on stock prices of the President's early actions to restrict the virus's spread. According to the survey, 62.5 percent of publicly traded manufacturing and affiliated firms (B.O.C Kenya Ltd, British American Tobacco Kenya Ltd, Eveready East Africa Ltd, Flame Tree Group Holdings Ltd, and Kenya Orchards Ltd) had a negative reaction to the Covid-19 pandemic declaration. As a result, 37.5 percent of publicly traded manufacturing and related firms (Carbacid Investments Ltd, East African Breweries Ltd, and Unga Group Ltd) responded favorably to the Covid-19 pandemic declaration. However, the investigation revealed that none of the abnormal returns were statistically significant and that none of the abnormal returns were more than 1 or less than -1, indicating that none of the investors benefited or lost abnormally as a consequence of the Covid-19 pandemic announcement. Additionally, the investigation discovered a considerable decline in the Cumulative Average Abnormal Returns on Manufacturing and Related Businesses listed on the Nairobi Securities Exchange. This indicates that the President's early attempts to halt the spread of the virus on 15 March 2020 had a cumulatively negative impact on the stock returns of manufacturing and affiliated enterprises listed on the Nairobi Securities Exchange. The report recommends that the Treasury, the capital markets regulator, the Capital Markets Authority (CMA), and the Nairobi Securities Exchange (NSE) take certain policy measures to avert a severe financial and economic disaster caused by the COVID-19 health crisis, other pandemics, and catastrophizes. The following policy actions are recommended: expand central bank liquidity support to ensure adequate liquidity to ensure the smooth operation of markets; provide immediate fiscal support to viable businesses; and assess the need to temporarily share fiscal burdens from businesses affected by the pandemic. Recommendations are also made to the financial analysts not to estimate market capitalization, and by extension, securities value, by relying on information resulting from pandemics. To be able to predict bear and bull markets, they should mostly perform due diligence and background check on their investment targets. Henceforth, this study will offer them immeasurable insights, which will help them when advising their clients. Consultants and listed firms practitioners should not mainly focus on information resulting from pandemics to time strategies like securities exchange listings, rights issues, and dividend pay-outs.