The Effect Of Bonus Issues Announcement On The Stock Returns Of Companies Listed At The Nairobi Securities Exchanges

Abstract

The correlation between announcements of bonus issues and returns on the stock market has been an area of discussion for a long time, the study aimed at determining the effects of bonus issue announcement on stock market returns of companies listed at the NSE. Investors are interested in movement of share prices of various companies as this directly affects their wealth in form of capital gains hence are interested to know whether bonus announcement will affect share prices. The target population was all the 64 firms listed at Nairobi Securities Exchange as at 31st December 2018. Census sampling was used to select all companies that issued bonus between 2014 and 2018. The event study methodology was used to determine the influence of Bonus Issues Announcement on stock market returns. The event window period was between 15 days before and 15 days after announcement of bonus shares. Abnormal Returns (AR), Average Abnormal Return (AAR) and Cumulative Abnormal Returns (CAAR) around the event day were calculated using the Market Adjusted Abnormal Return model. Secondary data that is announcement date, closing share price, Nairobi Security Exchange index (NASI) and Volume traded was obtained from Nairobi Securities Exchange data base. Once the data was coded, it was entered the Statistical Package for Social Sciences (SPSS) version 24 for analysis. From the study a positive relationship between bonus issue and share price of firms listed at the NSE due to a positive CAAR of 0.1279 was concluded. The market changes to anticipation of bonus announcement and later corrects its self after the announcement. The study recommends more companies to be sampled in future with a wider event window period to give more accurate results, also other factors affecting share price should be considered while carrying out this research in future.