Effect of Commercial Bank Failure Announcement on Stock Returns of Banks Listed at the Nairobi Securities Exchange

Abstract

Outrageous financial occasions raise systemic hazard for the banking system. Systemic dangers can give huge negative impacts crosswise over numerous businesses and nations and are probably going to have far reaching negative results for bank representatives, clients, shareholders, and, at last, the economy. This study examined the impacts of bank failure announcement on the share prices of banks quoted at the NSE. Event study methodology was embraced as the study was investigating the information content of bank failure announcement on stock returns of listed banks at the NSE. There are 11 commercial banks listed at the NSE and they formed the population of this study. Secondary data on the historical daily share price and the NSE 20share index was obtained for the period before and after the announcement of failure of banks at 14th August 2015, 13th October 2015 and 7th April 2016. Data was coded and entered into Excel and STATA for analysis. ` In the Dubai Bank failure, only National Bank abnormal returns were significant at 95% level of confidence. The t-test statistics shows that for all the three bank failure announcements average abnormal returns were statistically significant at 5% level of significance.