Firm Factors and Share Returns of Secondary Equity Offers at Nairobi

Abstract

This paper provides an empirical analysis of the effect of firm factors namely size, profitability, leverage and shareholding structure on share returns of secondary equity offers at Nairobi Securities Exchange in Kenya. An event study employing the market model determined share returns of 52 bonus issues and 28 rights issues announced between January 2006 and December 2015. Multivariate linear regression analysis established the effect of size, profitability, leverage and shareholding structure on share returns of secondary equity offers obtained from the event study. The results of the event study indicate that secondary equity offer announcements had a significant positive effect on share returns and thus investors increased their wealth during the event period. The results of multivariate linear regression analysis revealed that profitability and shareholding structure had a significant positive effect on share returns, size had a significant negative effect on share returns while leverage did not affect share returns. The study recommends investors to participate in secondary equity offers of small sized profitable companies with a high proportion of institutional investors because they will realize positive share returns and increase their wealth. The study further recommends management of small sized and profitable companies with a high proportion of institutional investors to raise capital through secondary equity offers as this will increase their market capitalization. The Capital Markets Authority and Nairobi Securities Exchange should consider size, profitability and shareholding structure when screening companies seeking approval to raise capital through secondary equity offers.

Discourse on Fund Size Paradigms and Performance of Unit Trust Funds in Kenya

“…The coefficients of fund size in all funds are positive, meaning that fund size and performance have a positive relationship in that an increase in fund size increases the performance of unit trust funds in Kenya. These findings do not agree with the results by [34], [29], 41, and [33], who observed no effect of fund size on the performance of unit trust funds. Ainulashikin and Andrew saw a significant negative effect [4] while Samira and Slaheddine; and Maina found a significant positive effect on fund size and performance of unit trust funds, which agree with the findings in this study [39]; [26].…”

Fund Size and Performance of Unit Trust Funds in Kenya

“…In addition, it reflects lack of understanding of the market by the investors or the fund managers are not doing enough to woo investors [1]. The dismal performance also leads to loss of confidence and erosion of investor's wealth in the unit trust [28].…”

“…The investment canon put forward by Goetzmann posits the earning of returns as the reason for investments by any investor [16]. The desire for earnings in the future backs the motivation to invest and that the earning anticipated should be able to meet future cash needs [28]. Further, investors' motivation in investing anchors on the desire to increasing wealth and growing over time the initial investment.…”