| dc.description.abstract | The study sought to determine whether a rights issue announcement has an effect on the
share prices for companies listed at the Nairobi Securities Exchange who have in the past
5 years had a rights issue. An event study methodology, employing the market model,
was applied to determine the abnormal returns both on and surrounding the rights issue
announcement date. Data was collected from 8 companies that met the sample criteria
used, with secondary data from the NSE capturing stock prices, market index, and
announcement dates being collected for 20 days before and after the rights
announcement. Data was analysed through the use of the T-test on the daily share prices
and trading volumes over the event window to determine whether there was a significant
effect of share price and trading volume on rights issue announcement. The study found
that the Kenyan market reacts positively to rights issue announcements, with an increase
in volumes of shares traded after rights issue as compared to those before the rights issue.
Additionally, managers of the companies sought rights issues to encourage investors to
purchase their stock which appeared cheaper. There were positive mean returns with
respect to rights issue announcement. Consequently, there is an effect of rights issue
before and after rights issue is done on a particular security. This implies that the null
hypothesis was not accepted and instead, the alternative was as there indeed was a
relationship between rights issue announcement and share prices. The study recommends
that with future rights issues coming, particularly if the debt capital markets remain tight
and lending banks continue to limit their advances, will require a better analysis to
increase the market capitalizations for the companies issuing the rights. It remains to be
seen whether institutional investors will continue to support those companies who have
not sought to strengthen their balance sheets to date or need to raise even more capital
from shareholders. Future issues which the market will monitor closely are whether there
will be a rise in rights issues given that it is a cheaper and sometimes faster means of
raising needed capital to boost growth. This arises where an investor sells enough of its
trade-able rights to acquire the balance. Institutional investors may start to take this route
where they are not prepared to fully support the deals. | en_US |
