A outstanding has been increased during the entire period.

A share split
happens when a board of directors authorize a changes in the specified value is
made to lower the price market of share to make share more attractive for
potential investors. When a company’s share splits, the change in the specified
value is equal by equivalent change in the number of shares until the total
value that has been made still same. Director’s decision to split shares of the
company to increase the amount of stock which circulate at a certain date,
thereby issuing more shares to current shareholder (Dennis, 2002).

Share’s
price in the market get affected by a share splits. In that during and after
split, the price of shares will decrease because the amount of stock
outstanding has been increased during the entire period. However, number of
outstanding and the price of shares change but capitalization market still
constant. Moreover, stock splits as the trading of company’s shares where at
least five shares are distributed to each four held (Jensen and Ross, 1969).
Likewise, stock splits is a process of increasing the outstanding amount of
shares by decreasing the value of shares proportion, recapitalization achieved
by changing the number of outstanding shares. In addition, stock splits only
increasing the number of outstanding shares without changing any underlying
risk and return characteristic of the firm (Weston, 1988). Among the firms that
are trading in 3 National Stock Exchange that have issued stock splits are;
East African Cables Ltd, Sasini Tea, Equity Bank, Mumias Sugar Company, and
Kenya Commercial Bank.

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The advantages
from stock splits is, the amount of potential buyers will increase because
affordability of each shares is improved. The stock will automatically start to
rise in price because of buying frenzy. Thus, most of investors more likely
choose stocks that keep splitting because some of them conclude it as a
company’s future prospects. The drawback will arise if the company splits stock
and the price of the company itself falls. Further, shares may fall below this
requirement and will be taken out from exchange (Gallagher and Baker, 1980)

2.2       Bonus
Issues

A bonus issues or
script issue is a stock split in which a company issuing new shares without
charge to bring its issued capital in line with its employed capital but
increased capital will available for company after profits. Thus, this usually
happen after company made profits and then increasing its employed capital. In
other words, a bonus issue can be seen as alternative to dividends. No new
funds are raised with a bonus issue.

      Bonus
shares are issued by cashing in on the free reserves of the company. The
company assets build up its reserves by retaining a half of its profit over the
year but the part that is not paid out as dividend). However, these free reserves
increase and the company want to issuing the bonus issue can change a half of
the reserves into capital.

2.3       Right
Issues

The main products
are traded in the capital market is stock and the main purpose of capital
market in the country is trading stocks. In addition, traded in the capital
market have various types of bonds and stock derivatives. One of the products
of the derivative shares is a right issue or limited offer of shares.

Moreover,
right issue is a translation of the legal provisions which governing a
preventive right in every old shareholder in a limited liability company, where
every shareholder which listed in the shareholder list is entitled to get right
to buy every new or issued shares in the company portfolio. Right shares are
usually issued at a discount as compared to the prevailing traded price in the
market. The existing shareholders get allowed a prescribed time or date within
which need to exercise the right or the right will be forgotten. Right issue is
the common stockholders as the owner of the corporations have a preventive
right to subscribe to new offerings, these right have been interpreted in a
limited way (Brealy and Myres, 2000).

A
right offer is an offer of a company’s shares to its available shareholders it
gives the existing shareholders the first convenience to purchase a new issue
of shares and the shares are issued with discount as a compensation for the
stake dilution that will take place post issue of additional shares. The
provision of the offer are that each existing shareholder has the right to be
distribute a certain number of shares upon payment of the asking price. The
number of shares he is attempted is number of the company shares; he is
attempted an identical percentage of the new shares to be issued that means
that if the shareholder takes up the offer he will control his existing
percentage ownership of the company. This offer does not have to be accepted
individually by the existing shareholders. They may sell the right
independently from the share or sell the share with the rights offer attached.

Second
feature, the existing shareholders can trade the right to other interested
market participants until the date at which the new shares can be purchased. In
addition, the right are traded with the same way as equity shares. The next
feature is the amount of right issue for shareholders usually at a proportion
of existing holding. The last, existing shareholders can choose to ignore the
right. However, may not do as existing shareholding will be diluted post issue
of additional shares and make loss for the result for existing shareholder.

A
company may look to raise a large capita amount for projects that may be have a
longer gestation period, some project where debt or loan may not available or
suitable or expensive usually makes the company raising capital by this way.
Therefore, company want to improve debt to equity ratio or searching to buy a
new company may opt for funding by right issue route however sometimes
company’s problems may issue right shares to pay back debt to ease the
financial strain.