The effect of the earnings announcements on the stock prices of companies listed at the Nairobi Stock Exchange

Abstract

This study was undertaken a view of establishment whether earnings announcements effect the stock prices of the firms listed at the Nairobi Stock Exchange for the years from 2004 – 2008. The objective of this is study was to determine whether earnings announcements generate abnormal returns and duration of abnormal returns of firms listed at the Nairobi stock exchange. Data extracted from NSE Daily stock and NSE handbook for the 2004 -2008 and was analyzed using SPSS with focus on comparing critical t-value with table t-value and was presented using tables and graphs. From the data analysis and resulting tables show that all companies sampled had an eventful earnings announcements. The graphs confirm a turning point in residual around the date of earnings announcements for most of the companies. The findings are that significant movements in return were observed periodically, pre and post earnings announcements. Most of the shares posted negative abnormal returns around the earnings announcements dates which shows how stock prices have reacted the earnings announcement event. The above findings show that statistically negative abnormal returns were observed in the post and pre earnings announcements of firms listed at the Nairobi Stock Exchange. Given that a number of issues to be deliberated at earnings announcements are public information prior to earnings announcements and one would not expect revision in share prices that result into abnormal gains or losses. In which case abnormal gains or losses is only realizable if good or bad news emerges from the earnings announcements.