Abstract:
In Kenya, stock splits were unheard of in the stock exchange market until the year 2004 when the Kenya Oil Company became the first company to announce a stock split of its shares and other companies have followed suit. Lately there had been complaints that the share prices of some securities were being manipulated. lt was therefore important to establish the level of efficiency in the NSE through a study on stock split announcement in order to elicit full information. The main objective of the study was to establish whether or not stock splits announcements have information content. The study was expected to provide evidence on the semi-strong form of the Efficient Market Hypothesis at the Nairobi Stock Exchange. The study covered eight companies listed at the NSE which had announced stock splits between January 2004 to June 2007 in which the Event study methodology was used and Regression Analysis was applied. The study covered event window period of 15 clays and estimation period of 40 days. Secondary data from the NSE formed the main source of data. This study was aimed at gaining investor confidence in the Nairobi stock exchange which can help to boost inflow of funds and therefore lead to increased production of goods and services when the market is proved to be semi — strong efficient. It can be inferred that the NSE is not semi-strong efficient. This can imply that the NSE is weak form efficient. The market did not react efficiently to stock split announcements with regards to stock returns. The Capital Markets Authority should therefore try to find out and eliminate those factors causing the inefficiency in the market in order to boost investor confidence.
