An empirical examination of the relationship between stock splits and stock performance of firms listed on Nairobi Stock Exchange (NSE)

Abstract

This study analyzes the impact of stock split on stock return and trading volume, of listed company in Nairobi Stock Exchange. The study is based on daily return data of listed firms on NSE for period from 2004 to 2011. The results confirm finding as in other markets, investor react positively to splits announcements. At the execution date of stock splits, there is a significant abnormal return on the three days after split.

The study provides evidence that split cause trade friction at the announcement and execution dates. Pre announcement statistical results are significant compared to post date though positive less significant. Trade volume tending to split date decrease and statistically increase after the split. The study confirms investors' behavior overreaction at the announcement and execution led to momentum short run abnormal return and liquidity.