The effect of bonus issue announcements on share prices of commercial banks listed at the Nairobi Securities Exchange
Abstract
The question of whether the announcement of issuance of bonus shares by quoted companies is
news to stock market participants or it is anticipated by the market has been the subject of
research. If the announcement is anticipated, then stock prices should not change drastically
during the days surrounding the announcement date. This research employed the event study
methodology by using the bonus announcements of eight NSE listed banks that occurred during
the year 2009 to 2013. The t-test statistic was employed to test the significance of the average
abnormal returns and cumulative average abnormal returns from zero. It is possible to profit
from bonus share announcement when the abnormal or abnormal returns are significant from
zero. The results of t- tests on the average abnormal return (AAR) and the cumulative average
abnormal return (CAAR) indicated that abnormal returns were significantly different from zero
which implied that implied that there is an anomaly of the NSE with regards to bonus
announcements as it is possible to profit from such announcements which is regarded as news by
NSE investors. This study analyzed the share price performance of listed banks in the Nairobi
Stock Exchange before and after bonus issue announcement. The share prices of listed banks
during the event study and NSE month end indices for the period between 2009 and 2013
obtained from the NSE were analyzed using the event study market model where abnormal
returns (AR) and cumulative average abnormal returns (CAAR) were derived. The results are
displayed in APA tables and graphs. The study established that there is a relationship between
bonus issue announcement and performance of share prices of listed banks in the Nairobi Stock
Exchange (NSE) in Kenya. Majority of the banks experienced share price fluctuations
immediately and after the bonus issue announcement.
Publisher
University of Nairobi
Description
Masters