| dc.description.abstract | Theoretically a stock split is merely an accounting adjustment and leave investors no
better or worse off than they were before the split. However, stock splits are a
relatively common occurrence implying that there must be some benefit, either real or
perceived that result from firms splitting their shares. There are several theories that
have been advanced to explain why companies split their shares, the most common
include the motive to achieve an optimal price range for liquidity, to achieve an optimal
tick size and to signal managements' confidence in the future stock price.
This paper examined the long-run effect of stock split announcements on market
performance of companies listed at the Nairobi Securities Exchange. This was
achieved by studying thirteen companies that had undergone stock splits in the period
2004 to 2012. The study made use of daily adjusted prices for sample stock for the
period of 102 months. The calendar-time portfolio methodology was employed in the
determination of the effects of the split. Portfolio returns were calculated each month
and regressed using the Fama and French (1993) three factor model to determine the level of
abnormal returns.
The study observes negative long-term performance of splitting firms at - 0.05 % for
equally weighted portfolios and - 0.0 I% for value- weighted portfolios. This finding is
consistent with empirical findings of Boehme and Danielsen (2007) who found that
firms do not exhibit positive long-term post-split returns. We also find that the
performance is significantly positively correlated with the market factor. However, it is
negatively correlated with size and book value to market value ratio. The key result of
this study is that firms listed at the NSE do not exhibit positive long-term post-split
returns. | en_US |
