Abstract
Purpose: The purpose of this study was to establish the effect of new information from rights issue announcement on share prices of firm's listed on the Nairobi Security Exchange.Methodology: The study was carried out using descriptive research design. The target population consisted all companies listed on the NSE, and had previously done a rights issue. Convenient sampling technique was used to identify firms that had rights issue in the period under study. Secondary data was collected using a schedule developed by the researcher. Data analysis was done using events study methodology and regression modelling.Results: Based on the findings the study found that mean share prices before and after the rights issue announcement was statistically insignificant as indicated by the t-test (t= -0.435 and p-value = 0.663).Unique contribution to theory, practice and policy: Based on the findings the study recommends that further studies to be done on the impact of bonus issues, IPOs, and the global economic crisis (2008-2009) on stock returns of companies listed at the NSE.
Highlights
1.1 Background of the StudyPublic Companies raise most of their capital through the issue of new ordinary shares, rights issues, debenture stock, preference shares and other sources
Based on the findings the study found that mean share prices before and after the rights issue announcement was statistically insignificant as indicated by the t-test (t= -0.435 and p-value = 0.663)
Practice and policy: Based on the findings the study recommends that further studies to be done on the impact of bonus issues, Initial Public Offerings (IPOs), and the global economic crisis (2008-2009) on stock returns of companies listed at the Nairobi Security Exchange (NSE)
Summary
Public Companies raise most of their capital through the issue of new ordinary shares, rights issues, debenture stock, preference shares and other sources. Companies going public issue their shares through the Initial Public Offering (IPOs), while those in existence issue additional shares for subscription through a rights issue to existing shareholders. The market comprises of two important market segments, new issue or commonly known as the primary market for Initial Public Offerings (IPOs) and the Stock exchange known as the secondary market. Public companies with listed and widely held shares, can issue additional shares to the existing shareholders through a rights issue. Right issue is an inexpensive way of raising additional funds from the company’s existing shareholders so as to meet the firm’s expansion programs, acquisition of new plant and machinery, repayment of debt and other financial needs. Rights issue is said to be cheap because, the firm does not incur underwriting costs, brokerage costs, advertising costs and mailing & printing costs may be very minimal
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