Stock Splits and Performance of Firms Listed at the Nairobi Securities Exchange, Kenya

Abstract

In Kenya, studies have been undertaken in the past on firm performance responses to event announcements. But, the effects of stock splits on firm security returns at the Nairobi Securities Exchange (NSE) have not been exhaustively dealt with due to lack of enough information and the fact that it is a new mission of listed firms. Due to the small number of firms that have split stocks, the target population for the study included all listed firms that have split their stock between the years 2004 to 2013 effectively adopting the census sampling technique. The purpose of the study was to determine whether stock split events have a significant effect on shares turnover. The changes in stock price over a window period of twenty one (21) days was considered appropriate due to the reliability of short horizons in corporate policy decisions. The trading activity ratio (TAR) model was used to analyse the research data and the mean difference obtained and tested for significance using student - statistic at 95% confidence level. The results show that splitting firms in Kenya had their shares traded improve immediately after the event announcement. This was because the shares turnover of six out of nine firms under the study had their TAR mean (