The effects of stock split announcements on share returns at the Nairobi Security Exchange

Abstract

There are four major functions performed by a manager in any serious organization namely, financing or capital mix decisions, investing or long term asset mix decisions, liquidity or short term asset mix decisions and lastly dividend or profit allocation decisions. Dividend decisions are concerned with determination of proportion of total earnings attributable to ordinary shareholders that should be paid to them as cash dividends or otherwise and the proportion that should be retained for re-investment. A number of researchers have provided insight , theoretical as well as empirical ,into dividend puzzle, however the issue as to why firms pay dividends is yet unresolved. Several rationale for corporate dividend policy have been proposed in the literatures but there is unanimity among researchers ,however everyone agrees that the issue is important as dividend payments is one of the most commonly observed phenomenon in corporate worldwide. Dividend policy determines the division of earnings and distributions of company stock among shareholders .In addition to paying cash dividends ,some companies pay stock dividends or declare stock splits. In Kenya ,stock split were unheard of in the Nairobi security exchange market which formerly was stock exchange market until 2004 when Kenya oil company became the first company to announce a stock split of its shares then after other companies followed suit.