COVID 19 announvements, stock liquidity and aviation industry stock return; a case of Kenya Airways.

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.