A study to establish factors managers consider before declaring bonus issues and the estimation of benefits to shareholders: at the Nairobi Stock Exchange.

Abstract

The objectives of this research were firstly, to find out factors managers consider when making decisions to declare stock dividends and secondly, to establish if shareholders gain from such declarations, in terms of increased dividends. In order to achieve these objectives both primary and secondary data were used. The information for the first objective was obtained by the use of a questionnaire, which was completed by 22 companies. For the second objective, the sample comprised 62 bonus issues made during the period 1994 to 1998, derived from annual reports of the companies in this study. The study identified six important factors that managers of companies listed at Nairobi Stock Exchange consider before issuing bonus shares. These are: cash conservation, giving recognition that some retained earnings have been permanently committed in the firm, creating greater interest in the firm's share, broadening of shareholders base, correcting -o.f a situation where retained earnings have grown disproportionately large in relation to capital contributed by shareholders and signaling better future prospects. On the second objective, the study established that shareholders gain from stock dividends in terms of increased cash dividends. The average increase of 10.23% experienced during the period covered by the study was found to be statistically significant. (