Impact of rights issues on stock prices: the case of Companies listed at the Nairobi stock exchange

Abstract

This study examines the impact of right issue announcements on share prices of companies listed at the Nairobi Stock Exchange. The Study is based on a sample of six rights issues between 1996 and 2002. The study examines whether the average abnormal returns surrounding the rights issue announcement was statistically different from zero. The market model was used to derive the expected returns and a t-test statistic was used to test the hypothesis. Data analysed for six companies showed negative price adjustment for companies, which issued rights issue. The results document a negative abnormal return prior to the announcement day of the rights issue and a moderate setback thereafter.