Share Price Response to Rights Issue in Zimbabwe (2009-2012)

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The study sought to investigate, using daily data, whether share prices respond to rights issue announcements in Zimbabwe for the period 2009 to 2012.The study was prompted by the need to recommend the feasibility of rights issues as a re-financing option.

The standard market model was used to determine the expected returns for stocks of individual firms based on an estimation window of 119 to 15 days prior the rights offer announcement.

Normality of residuals was tested using the Jarque-Bera test.

Using a sample of 12 firms that issued rights offers between February 2009 and November 2012, the study shows a positive cumulative average abnormal return of 0.1338 noted in the 10 day period prior the announcement; followed by a negative statistically significant average abnormal return of -0.0031 on the announcement date, tested using the non-parametric rank test.

It is recommended that, despite the need to recapitalize, firms must postpone rights offers till stocks are overpriced.

This is based on the concrete evidence pointing to share value decrease post rights issue announcements for the selected counters.

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