An empirical analysis of the relationship between bonus issues and stock liquidity of firms listed at Nairobi Stock Exchange
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The impact of bonus issues on stock liquidity has been a subject of study in various markets with varying results. This study examined the relationship between bonus issue and the stock liquidity of firms quoted at the Nairobi Stock Exchange for the period between 2003 and 2009. The study used the multi-dimensional measures of liquidity to avoid the shortcomings of the one-dimensional measures. The study adopted a causal research design in establishing the relationship between stock liquidity and bonus issues on a sample size of 20 companies that had issued bonuses between 2003 and 2009. Secondary data from Nairobi Stock Exchange was used. The study collected the daily share prices, trading volumes and number of transactions from which weekly averages were used to compute the three liquidity measures-Liquidity ratio l.Liquidity ratio 3 and Flow ratio. The study then used descriptive statistics (mean, standard deviations, minimum and maximum values), measures of association (correlations and ANOVA) and regression analysis in establishing the relationship between stock liquidity and bonus issues. After conducting ANOV A on the regression model, the study established the regression model (using flow ratio) to be significant at (p<0.039). A further Analysis of Variance by sector segments showed a significant relationship between bonus issue and stock liquidity (flow ratio) for Financial Sector (p=0.003) and Industrial and Allied Sectors (p = 0.004) while for Commercial Sectors liquidity ratio 3 was the most significant measure of liquidity (p = 0.023). The study concludes that the stock liquidity reaction to the information content of the bonus issues in Kenya is positive, in line with evidence from semi strong efficient markets.
University of Nairobi, Kenya