The Effects of Stock Splits on Ownership Structure,Stock Traded Volumes and Market Capitalisation

Abstract

This study looks at the effect of stock split on ownership structure,share traded volume and capitalisation of firms in Kenya.There is scanty empirical evidence on the effects of stock splits in Kenya since it is a new concept in the Kenyan financial market.The effects of stock splits are generalized from studies done in other countries with different levels of capitalmarket efficiency,listing rules,economic growth and even cultures.This study looked at the Kenyan situation.Data on annual ownership structures was collected from the firmss' financial statements and from the CMA.The traded volume for the firms' shares was collected from the NSE using data collection sheets.The mean turnover was computed for the period 52 weeks before and after the split.The mean capitalisation was also computed for the same period.Data on ownership structure was analysed using the Wilcoxon rank sum test,wheareas data on traded volumes and captalisation was analysed using the event study method and a-z test.

The results show that a stock split leads to a change in ownership among the top shareholders ,especially local institutions.Although ownership concentration may be beneficial,such institutional control,where a small number of shareholders(the top ten)hold huge chunks of shares(over 70%)may not be very good for the firm.A stock split also leads to increase in stock trade volumes and market capitalisation.Thus a stock split has a positive effect on firm value.There is need for regulations to control the extent of ownership concetration if its negative effects are to be countered.There is need for further research to establish optimal ownership structure for firms.