Effects of Bonus Share Issues on Stock Returns of Firms Listed at the Nairobi Securities Exchange
Abstract
The arrival of new information releases are generally associated with increased trading
volume, significant abnormal returns, increased security returns variability, and changes in
systematic risk. A bonus share issue is a signal that the company is in a position to service its
larger equity. The management would not have issued these shares if it was not confident of
being able to increase its profits and distribute dividends on all these shares in the future
(Charles, 2006). Most of the studies seem to agree that markets are fairly efficient in the
sense that prices adjust very quickly to public news disclosure (Woodruff and Senchack,
1988). The objective of this study was to determine the effects of bonus share issues on stock
returns for firms listed in the NSE. An event study research design was used in the study. The
population under study comprised all companies quoted in the NSE which are currently 62 in
number. A total of 17 companies from various sectors which had issued bonuses during the
study period between 2008 and 2012 were investigated. Secondary data was used collected
from the NSE hand books. Event study was used in data analysis. Event study is an empirical
analysis that is normally used to measure the effect of an event on stock prices (returns). The
study analysed the returns of the shares for 61 days, 30 days before and 30 days after the
bonus issue announcement. The study found that bonus issue announcements led to
statistically significant positive abnormal returns around announcement dates. Therefore,
showing the Kenyan market reacted positively to bonus issue announcements. There was an
increase in volumes of shares traded after bonus issue as compared to those before the bonus
issue. Results of the cumulative abnormal returns indicated that there is a positive cumulative
abnormal return across the different event windows.
Citation
Masila Ramadhan Ratib (2013). Effects Of Bonus Share Issues On Stock Returns Of Firms Listed At The Nairobi Securities Exchange. Master Of Science In FinancePublisher
University of Nairobi