| dc.description.abstract | Rights issue is a secondary equity issue in which new additional shares are issued to
the existing shareholders in exchange for cash (capital) needed by a publicly quoted
company, either for expansion purposes or to finance company operations. The rights
are issued to the shareholders in the proportion of their existing holdings. The few
available studies give mixed results on the direction of stock returns upon a rights
issue announcement. There has been no consensus on how capital markets generally
respond to rights issue announcement. The objective of this study was to investigate
the effect of rights issue announcement on stock returns of listed companies. This
study adopted a descriptive research design and a sample of twelve listed companies,
which issued rights between January 1, 2007 and August 31, 2014 were used to meet
the objective. The required data for this study was collected from NSE and using
event study model and Microsoft excel, descriptive statistics and statistical correlation
was used to analyse the data and the significance of the findings tested using the two
tailed t statistic at 95% significance level. This study found that stock prices and
returns changed significantly in the post announcement period than in the
preannouncement period. Analysis of mean abnormal return revealed that rights issue
announcement result into either positive or negative stock return. The general
conclusion of this study based on the generated CAAR is that rights issue
announcement results into a negative abnormal stock return on listed firms. This study
recommends that investment banks and listed companies to consider the negative
abnormal stock price reactions and the subsequent negative abnormal stock return
changes to the announcement of rights issue, when setting the discounted rights issue
prices to ensure that during the issue period, the stock trading prices do not fall below
the rights issue price, a fact that can lead to the collapse of the rights issue exercise | en_US |
