The effect of modified audit opinions on share prices for companies quoted at the Nairobi Stock Exchange

Abstract

The study was conducted with the objective of investigating the effects of Modified Audit Opinions on share prices. A survey was carried out on 49 companies that were continuously listed at the Nairobi Stock Exchange during the period of study. The data collected was on audit opinions, daily share prices, closing share prices, average weekly share prices, shares outstanding and book value of equity. The data collected was analyzed using descriptive statistics, correlation analysis, ANOVA and regression analysis. The mean and standard deviation were calculated and compared for closing share prices, book value of equity, shares outstanding and weekly average share prices. Correlation analysis was done to determine the strength of the linear relationships between the audit opinions and the closing share prices, shares outstanding, book value of equity and average weekly share prices. The findings of the study revealed that there is a very weak negative relationship between audit opinions and share prices and that the audit opinion only accounted for a very small percentage of the change in share prices. The ANOVA results indicated that these results were statistically insignificant and varied with the different dependent variables. Based on these research findings, it was concluded that there is a weak negative relationship between audit opinions and share prices. The study recommends the strengthening of the regulatory role of ICPAK to ensure that audit reports that are released to the public are devoid of collusion between company management and auditors. The study also recommends that CMA should make it mandatory for all quoted companies to file interim audit reports during the financial year so that this information is reflected in share prices in a timely manner.