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Effects of Stock Split Announcements on Stock

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Effects of Stock Split Announcements on Stock EFFECTS OF STOCK SPLIT ANNOUNCEMENTS ON STOCK PRICES OF PUBLIC QUOTED FIRMS IN KENYA BY KEFA MICHAEL GITAU NGOIRI UNITED STATES INTERNATIONAL UNIVERSITY-AFRICA SUMMER 2017 EFFECTS OF STOCK SPLIT ANNOUNCEMENTS ON STOCK PRICES OF PUBLIC QUOTED FIRMS IN KENYA BY KEFA NGOIRI A Research Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA) UNITED STATES INTERNATIONAL UNIVERSITY-AFRICA SUMMER 2017 DECLARATION I, the undersigned declare that this is my original work and has not been presented to any other institution other than The United States International University for academic credit Signature; ……………………………… Date; ……………………………….. Kefa M.G. Ngoiri (646964) This project has been presented for examination with my approval as the appointed supervisor Signature; ……………………………… Date; ……………………………….. Dr.Francis Gatumo Signature; ……………………………… Date; ……………………………….. Dean Chandaria School of Business ii ACKNOWLEDGEMENT I first wish to thank the almighty God for his grace and gift of life and giving me patience as I undertook the project as things got rough. Special thanks to my family for moral support and more so to my mother Margaret Ngoiri for being there though out my life and providing whatever I needed since my childhood, I salute you. I also wish to appreciate through this project my grandmother Joyce Ngoiri, though not directly involved in the project she was instrumental through her way of life which always keeps me going and picking myself up when things get rough. I also wish to acknowledge my Supervisor Dr.Francis Mambo Gatumo for having agreed to supervise this project and for his guidance through the project. For anyone who contributed towards this project please accept my kind appreciation. iii ABSTRACT The general objective of this study was to examine effects of stock split announcements on stock prices of public quoted firms in Kenya. The purpose of this study was to establish the effects of stock split announcement on stock prices of public quoted firms in Kenya. The study was guided by the following research questions; does stock split announcement result in change of share price of public quoted firms in Kenya? and What is the effect of stock split announcement on the stock volumes of public quoted firms in Kenya? Descriptive research design was used seeking to explain the relationship between stock split announcement and stock prices as well as stock volumes. Event study methodology was employed to determine the effects of the split announcement. Stock price changes were analysed to with an aim to determine if stock splits announcement bring about any adjustment or changes in the Kenyan market. Daily stock price and volumes traded were were recorded during the study period of 90 days comprising of 45 days before the split and 45 days after the split. The study established that announcement of stock split positively impacts on the share prices but seldomly affects volumes traded. The study recommends that CMA should consider having a policy to encourage firms to split their shares to increase their liquidity and encourage retail investors to be active in the market. More researches should be encouraged in this area and NSE should avail historical information freely which may also encourage transparency and confidence in the market. iv TABLE OF CONTENT DECLARATION................................................................................................................ ii ACKNOWLEDGEMENT ............................................................................................... iii ABSTRACT ....................................................................................................................... iv LIST OF TABLES ........................................................................................................... vii LIST OF FIGURES ....................................................................................................... viii CHAPTER ONE ................................................................................................................ 1 1.0 INTRODUCTION........................................................................................................ 1 1.1 Background of the Study ............................................................................................... 1 1.2 Problem Statement ......................................................................................................... 4 1.3 Research Objectives ....................................................................................................... 6 1.4 Research Questions ........................................................................................................ 6 1.5 Significance of the Study ............................................................................................... 6 1.6 Scope of the Study ......................................................................................................... 7 1.7 Limitations of the Study................................................................................................. 7 1.8 Definition of Terms........................................................................................................ 7 1.9 Chapter Summary .......................................................................................................... 8 CHAPTER TWO ............................................................................................................... 9 2.0 LITERATURE REVIEW ........................................................................................... 9 2.1 Introduction .................................................................................................................... 9 2.2 Effect of Stock Split Announcement on Stock Prices ................................................... 9 2.3 Effect of Stock Split Announcement on Stock Volumes ............................................. 15 2.4 Conceptual Framework ................................................................................................ 20 2.5 Chapter Summary ........................................................................................................ 21 CHAPTER THREE ......................................................................................................... 22 3.0 RESEARCH METHODOLOGY ............................................................................. 22 3.1 Introduction .................................................................................................................. 22 3.2 Research Design........................................................................................................... 22 3.3 Population and Sampling Design ................................................................................. 22 3.4 Data Collection Methods .......................................................................................................... 23 3.5 Data Analysis Methods ................................................................................................ 24 v 3.6 Chapter Summary ........................................................................................................ 24 CHAPTER FOUR ............................................................................................................ 25 4.0 RESULTS AND FINDINGS ..................................................................................... 25 4.1 Introduction .................................................................................................................. 25 4.2 Descriptive Statistics ................................................................................................................ 25 4.3 Normative Test............................................................................................................. 25 4.4 Change of Share Price .................................................................................................. 26 4.5 Average Stock Volume ................................................................................................ 27 4.5 Chapter Summary ........................................................................................................ 29 CHAPTER FIVE ............................................................................................................. 30 5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS ........................ 30 5.1 Introduction .................................................................................................................. 30 5.2 Summary ...................................................................................................................... 30 5.3 Discussion .................................................................................................................... 31 5.4 Conclusion ................................................................................................................... 33 5.5 Recommendations ........................................................................................................ 33 REFERENCES ................................................................................................................. 35 APPENDICES .................................................................................................................. 40 Appendix I: Letter of Introduction ............................................................................................. 40
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