The role of corporate information releases in promoting market efficiency cannot be overstressed. Thus, the extent to which stock prices of a firm respond to the announcement of corporate events such as equity issues announcements has far reaching implication on the assessment such a firm receives from existing shareholders, prospective investors and other market analysts. Despite these importance and the fact that studies on stock prices reaction to equity issues announcements have become increasingly relevant in explaining semi-strong form market efficiency; little or no research attention has been devoted to the study of such reactions in Nigeria. Consequently, the objective of this study is to empirically examine the reaction of stock prices to the announcement of equity issues by DMBs in Nigeria. The study is correlational in nature and employed the standard event study methodology where the abnormal return is computed as the residuals of the market model. Using a total of fourteen
announcements by thirteen DMBs from 1st January 2006 to 31st December 2010; the study found a positive and significant cummulative abnormal return prior to the announcement date and a negative and significant cummulative abnormal return on the announcement date.
The study therefore concluded that the presence of abnormal return suggests the semi-strong form inefficiency of the Nigerian banking sector with respect to the announcement; while evidence of abnormal return before the announcement is consistent with insider trading.
Consequently, it was recommended that there was the need for capital market regulators, the SEC and the NSE, to put in place rules that will compel insiders to report the details of their transactions not later than forty eight hours after they have been executed and entrench an
efficient information dissemination mechanism in the form of a dedicated daily capital market journal in both print and electronic form that will ensure the instant and rapid circulation of corporate events as they are announced by firms. Lastly, it was also recommended that the
regulatory authorities should ensure that the process of equity issues is undertaken under a transparent, efficient and reliable framework devoid of manipulations.
