The effect of seasoned equity offerings on stock performance of commercial banks in Kenya

Abstract

The objective of this study was to establish the effect of seasoned equity offerings on stock performance of commercial banks in Kenya. The study used a descriptive research design. A census targeting the commercial banks that made seasoned equity offering between 2008 and 2014 was conducted. The study used secondary data obtained from the Nairobi Securities Exchange. Data was collected for the eight commercial banks that conducted seasoned equity offering on the NSE. Event study methodology was used to evaluate the effect of seasoning on stock performance. Simple linear regression was used to develop return models over the preannouncement period. Abnormal returns were calculated as the difference between the actual returns and estimated returns over the post announcement period of forty days. The study found that the cumulative average abnormal returns were negative. The average abnormal return was also negative. The result of t-test indicated that the average abnormal return were not statistically different from zero. It was concluded that equity seasoning does not have a significant effect on commercial banks stock performance in Kenya. The study recommended that investors in banking stocks would not earn abnormal returns following seasoning by commercial banks. Further research may investigate the effect of seasoning on stock performance by considering companies that made no other announcement simultaneous to seasoning. They may also evaluate the effect of seasoning on volatility of returns