Market reaction to shareholders' annual general meeting of companies listed at the Nairobi stock exchange

Abstract

The objective of this study was to examine the effect resolutions passed at annual general meetings (AGMs) on share prices of companies listed at Nairobi Stock Exchange (NSE). This required: collection of sample of firms that had AGMs; determine the precise day of the AGMs and make this as day zero; define the period to be studied, in this study we study 30 days before and after AGMs; compute daily returns for each firm in the sample; calculate market return; generate market model for estimating normal returns; compare actual returns to expected returns to generate abnormal return for each day for each firm in the sample; compute for each day in the event period the average abnormal return for all the firms in the sample; and compute cumulative abnormal return. From the data analysis and resulting graphs, it appears that all the companies sampled had an eventful AGM. The graphs confirm a turning point in residual around the date of AGM for most of the companies. The findings are that significant movements in returns were observed periodically, pre and post AGM. Some shares posted either positive or negative abnormal returns around the AGM dates. The above findings have implications.~n how efficient NSE is in pricing of securities listed at that exchange, given that statistically abnormal returns were observed in post and pre AGM in a number of securities at different dates. Given that a number of issues to be deliberated at AGM are public information prior to AGM, e.g. confirmation of accounts, election of directors, dividends payable etc, 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 AGM.