Abstract:
The stock market's reaction during the COVID-19 epidemic, when the global economy
was experiencing the biggest crisis since the Great Depression, has caused some
anxiety. Some economists (some of whom have won the Nobel Prize) have viewed
these responses as proof that stock markets are not entirely efficient, while others have
underlined the challenge of evaluating the rapid flow of information about the pandemic
and its financial ramification. One of the businesses that was most seriously impacted
by the 2020 coronavirus pandemic is the aviation sector. People were or are still too
afraid to fly because of travel prohibitions. The worldwide flight capacity was impacted
by national restrictions on international travel, long-distance travel bans, and trip
cancellations, all of which have so far caused the aviation industry to suffer severe
losses. Though studies have demonstrated that COVID 19 pandemic affects stock price,
existing empirical literature is scanty particularly among listed airline companies in
developing countries. From this background, this study sought to determine the
mediating effects of stock liquidity on the relationship between COVID19
announcements and the Kenya Airways stock returns. Specifically, the study examined
the effect of COVID 19 cumulative reported cases, COVID 19 cumulative death
reported. Additionally, the study determined whether stock liquidity mediated the
relationship between COVID 19 cumulative reported cases, COVID 19 cumulative
death reported and Kenya Airways stock returns. The study was grounded on the
information asymmetry theory. The study adopted both the longitudinal and
explanatory research design. The study focused on Kenya airways between March
2020 and November 2022. The data was secondary in nature and was extracted from
NSE and WHO databases through content analysis. Data was analysed through
descriptive and inferential statistics. Based on the regression results, the study found
that Covid 19 cumulative reported cases (β= -0.0173; ρ< 0.05) and Covid 19
cumulative death reported (β= -0.0421; ρ< 0.05) had a significant negative effect stock
prices of Kenya airways. Moreover, the study established that stock liquidity had a
partial mediating effect on the relationship between COVID 19 cumulative reported
cases (β=-0.0042, ρ<0.05). However, it did not mediate COVID 19 cumulative death
reported (β= -0.0007, >0.05) and Kenya Airways stock returns. The study concluded
that the Covid 19 cumulative reported cases and COVID 19 cumulative death reported
are key determinants of stock prices of Kenya airways. Additionally, the study
concluded that stock liquidity mediates that relationship. The study's findings have
implications for managers and regulators. First, it is imperative for managers to
establish detailed contingency plans that delineate precise measures to be implemented
in light of fluctuating levels of pandemic severity and heightened investor confidence.
Second, it is imperative for the regulatory body to give precedence to implementing
measures that effectively enhance stock liquidity for aviation companies listed on the
stock market, particularly in the midst of a global pandemic such as COVID-19. The
study suggests that it would be beneficial for future research to explore the correlation
between the variables examined in this study across other sectors, as the impacts of
COVID-19 may vary across different economic segments. Furthermore, academic
research may delve into the relationship across various legal systems. Further research
efforts may explore additional moderating factors, such as corporate and firm-specific
characteristics.