An Empirical Investigation Into The. Information Content Of Stock Splits Evidence From The Nairobi Stock Exchange
Abstract
Since l%*>, researchers have been bewildered by stock splits. The pioneer study by Fama. Fischer Jensen and Ross which tried to explain the reasons behind the noticeable increase in share prices before and after the announcement date formed the genesis of a myriad of studies on this area. The interest in stock splits is motivated by the fact that this event is not directly related to changes in the operating or financial structure of the firm and. therefore, should cause no change in stock price other than the adjustment warranted by the split factor. Ibis study intended to find out whether stock split announcements have u significant effect on share prices at the Kenyan stock market. Specifically lest the existence or absence of stock splits post announcement abnormal returns at the Kenyan slock market.
I he study explored the relationship between stock splits announcements and subsequent returns during the period of 2004 to 2008. The study finds that contrary to much previous research, lirnts do not exhibit positive abnormal returns at the long run and no abnormal returns can be cited for the period before the split announcement dale. Instead, the study finds out that significant positive abnormal returns after the announcement dale only persist for a very short time. The study also finds out that abnormal returns arc not correlated to market returns arid large capitalized firms experience broadly same scale of abnormal returns following a stock split announcement as small capitalized firms.
front the Kenyan stock market data, it can be concluded that stock splits announcements cause short term price drifts anti it's attributable to the speed at which new information is digested by the market, hence there is ample evidence on existence of information content in slock splits, The consistency of these results over all the firms that have announced stock splits at the NSI: provides a strong case on existence of stock splits post announcement abnormal returns.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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