Secondary Equity Offer Announcements and Share Returns at Nairobi Securities Exchange, Kenya

Abstract

This paper empirically analyzes the effect of secondary equity offer announcements on share returns at Nairobi Securities Exchange in Kenya by investigating the information content of the announcements and ascertaining whether the release of financial information in the capital market affects share returns. An event study employing the market return model determined share returns of 52 bonus issues and 28 rights issues announced between January 2006 and December 2015. The study established that secondary equity offer announcements had a significant and positive effect on share returns and that rights issues witnessed higher share returns when compared to bonus issues during the twenty-day event period. This study recommends management of Nairobi Securities Exchange listed companies to raise capital through secondary equity offers, as companies will increase their market capitalization. Investors on Nairobi Securities Exchange are encouraged to participate in secondary equity offers because they will earn positive share returns and increase their wealth. Existing shareholders should fully participate in rights issues because they will forgo positive share returns if they renounce their rights. Capital Markets Authority and Nairobi Securities Exchange should encourage more listed companies to raise capital through secondary equity offers, as this is advantageous to companies and investors.