Capital Expenditure Announcements and Stock Returns of Firms Listed at the Nairobi Securities Exchange, Kenya
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Date
2025-11
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Kenyatta University
Abstract
Capital expenditure announcements by listed companies constitute one of several avenues through which rational investors seek to realize gains in the form of stock returns. Within the framework of market efficiency, such announcements would not be expected to generate excess returns, as the information should already be incorporated into prevailing stock prices. Empirical research conducted in both advanced and emerging economies has produced mixed evidence regarding the market response to capital expenditure announcements, with some studies reporting positive investor reactions while others find no statistically significant effects. At the Nairobi Securities Exchange (NSE), episodes of inconsistent stock return patterns suggest deviations from strict market efficiency. The aim of this study was to investigate the impact of capital expenditure announcements on stock returns of firms listed at the Nairobi Securities Exchange, Kenya. Specifically, the study sought to determine the effect of product diversification announcements, examine the effect of asset expenditure announcements, and investigate the effect of research and development announcements on stock returns at the NSE. The study was grounded on four key theories: Efficient Market Hypothesis (EMH), Random Walk Theory, Arbitrage Pricing Theory (APT), and the Theory of Rational Expectations. A causal research design was adopted, encompassing all sixty-three companies listed on the NSE between 2012 and 2025. From this population, a purposive and judgmental sampling strategy was applied to select six firms that had issued capital expenditure announcements during the study period. Secondary data were obtained from the NSE and Financial Times databases, and data collection was facilitated through a desk review instrument. Analytical procedures were undertaken using Microsoft Excel. The study employed an event study methodology, utilizing the market model to estimate abnormal stock returns within the event window surrounding announcement dates. The analyzed data were found to be normally distributed. The study found that product diversification announcements had an effect on stock returns, whereas asset expenditure and research and development announcements had no effect on stock returns at the NSE. Aggregation of the three categories revealed that, overall, capital expenditure announcements have no significant effect on stock returns at the NSE. The study recommends that organizations should strategically use product diversification announcements to boost investor confidence, supported by sound financial analysis. Investors and analysts should monitor these announcements closely while adopting a long-term view for asset expenditure and R&D disclosures. Regulators such as the CMA and NSE should enforce timely and transparent disclosure of material information to enhance market efficiency and reduce information asymmetry. Strengthening disclosure standards and best practices in investor communication will improve market integrity and optimize decision-making.
Description
A Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirement for the Award of the Degree of Master of Science (Finance) of Kenyatta University, November 2025.
Supervisors
1. Dr. John Mungai
2. Dr. Jeremiah Koori