The Effect Of Bonus Share Issue On Stock Prices On Companies Quoted At Nairobi Securities Exchange

Abstract

This study focuses on the effect of bonus share issues on stock prices of companies quoted at the Nairobi Securities Exchange. The objectives of this study were to determine whether there are abnormal returns surrounding the bonus issues announcement and to establish the direction and magnitude of the stock price adjustment on announcement of bonus issue. The population consisted of all the companies quoted at NSE. A sample of 10 companies which declared bonus issues between the period of interest, 2006 to 2011, and were drawn from all the segments of the Nairobi securities exchange. In order to achieve this objectives secondary data obtained from the NSE Secretariat informational database and the companies' financial statements were used. Further, this study entailed the determination of the precise day of the bonus share issue announcement and this day was made to be day zero; definition of the period to be studied; in this study the study period was +30 to -30 days surrounding the announcement date. The magnitude of bonus issue announcement was expected to vary across the firms because the announcements were made by companies in different industries and at different times. It was hence useful to examine the behavior of each company independently. Data was presented using tables and graphs. Significance has been tested using the t-test. The findings of the analysis indicate that indeed bonus issue has an effect on stock prices. Immediately after the announcement of the bonus, there is increase in the number of shares traded. However there are other factors like stock split that affect stock prices. Hence the study recommends that further research need to be carried out with more variables being considered