Impact of Right Share Issue on Share Price of Commercial Banks in Nepal

Abstract

This study has examined the effect of issue of right share on share price movement in the banking sector using share price and price relative as the predictors of share price movement. Banking sub-index and index relative of different periods were used for analysis. Five different periods of time were selected to observe the share price movement considering the announcement date as the reference point of time. Based on the secondary sources of data, a correctional analysis was administered to examine whether the share price and price relative (banking index) has any relationship with the share price change in case of Nepalese commercial banks. Coefficient of determination and probable error were used to find how much percentage of the variation in the share price could be explained by the occurrence of right share issue and likewise, whether or not the relationship was significant. The results reveal that right share announcements have the signaling effect on share price movement. The share prices and banking indices of selected banks have decreased after the announcement of right share. The results suggest that the information irregularity behavior tempts a negative change in share price after the announcement of rights share. The implication of the results is that investors can forestall the nature of change in share price after rights issue announcement and develop strategic plans to expand the trading activity. Keywords: NCC Bank., Right announcement, Right share issue, Price relative, Index relative.