| dc.description.abstract | Capital structure is the mix of company's long term debt, specific short term debt, common equity and preferred equity; that is, how a firm flnances its overall operations and growth using different sources of funding. This is composed of equity (rights issue) and debt financing (credit market through corporate bonds etc). However, studies on how announcement of the same influences stock prices are inclusive and scanty. This study sought to fulfil this knowledge gap by investigating the effect of capital structure change
on share prices for firms quoted at Nairobi Stock Exchange (NSE).
This is an event study research design conducted on the 21 companies that had issued rights as a proxy of equity financing and 13 companies that had issued corporate bonds. Systematic sampling was used in choosing 10 rights issues and 6 corporate bond as it
considered chronological order of these events. Market model was used abnormal returns to investigate the stock market reaction and t-test conducted to determine the significance of the differences in the means of the abnormal returns pre-post anriouncement.
The study found out that the abnormality in returns were greater and positive before rights and corporate bond issues announcements than in the period after the announcement. Overall, the stocks of companies that conducted rights issues performed poorly in the periods after announcement than the stocks of companies that had issued corporate bonds. The study, thus, concluded that investors undervalued rights issues as they perceived that its diluted their stake in the companies. However, investors perceived debt-financing as adding value to the firm through greater accountability; hence, abnormality in returns were relatively positive. | en_US |
