Effect of Bonus Issue Announcement on Share Returns of Companies Listed at the Nairobi Stock Exchange

Abstract

The study aimed at determining the effects of bonus issue announcement on share prices of companies listed at the NSE. Investors are interested in movement of share prices of various companies as this directly affects their wealth in form of capital gains hence are interested to know whether bonus announcement will affect share prices. The target population was all the 62 firms listed at Nairobi Securities Exchange as at 31st December, 2014. Purposive sampling was used to select a sample of five companies that issued bonus between 2010 and 2014. The study methodology was used to determine the influence of Bonus Announcement on Prices of shares. The event window period was between 15 days before and after announcement of bonus shares. Abnormal Returns (AR), Average Abnormal Return (AAR) and Cumulative Abnormal Returns (CAAR) around the event day were calculated using the Market Adjusted Abnormal Return model. Secondary data that is announcement date, closing share price, Nairobi Security Exchange index (NASI) and Volume traded was obtained from Nairobi Securities Exchange data base. From the study a positive relationship between bonus issue and share price of firms listed at the NSE due to a positive CAAR of 0.028 was concluded. The market changes to anticipation of bonus announcement and later corrects its self after the announcement. The study recommends more companies to be sampled in future with a wider event window period to give more accurate results, also other factors affecting share price should be considered while carrying out this research in future.