The Impact of Rights Issues on Security Prices - Nairobi Stock Exchange (Nse)
Abstract
This research project examines the impact of rights issue for companies listed in the
Nairobi stock Exchange (NSE). Research on the impact of rights issue across the
world has revealed conflicting results. The exact impact for the companies listed in
the NSE is however unclear. These kinds of research are useful mainly to potential
investors and corporate managers who may be faced with a rights issue paradox and
rights issue financing option respectively.
A sample of six companies from the Nairobi Stock exchange (NSE) for the period of
1st April 1996 to 31st December 2002 is selected and the market model is used to
generate the excess returns. The constant parameters of the market model are
computed from pre event data using the GARCH (Generalized AutoRegressive
Conditional Heteroscedasticity) model, a superior analytical technique that
incorporates data breaks. A competing method of Least Squares is also used to
compare findings. The significance of the findings is tested using the two tailed t
statistic.
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The overall findings strongly confirm that rights issues in the NSE have information
content. The nature of the information is negative but the extent is varied across the
sample like other findings across the world. The implication of these findings is that
companies issuing rights must release sufficient and relevant information to the
market for proper interpretation of the issue.
Citation
MBASponsorhip
University of NairobiPublisher
University of Nairobi School of Business, College of Humanities and Social Sciences