Effect of profit warning on share price of companies listed at the Nairobi securities exchange

Abstract

Companies usually disclose information to investors about the performance of the company or the future plans of the company. Some of this information is disclosed voluntary and other times the legislation in place requires company to disclose particular information. One such information that companies listed at the Nairobi Securities Exchange are required to disclose is the profit warning announcement. If a company expects its financial performance to be lower by twenty five percent from the expected, they are required under the Capital Markets Act to make a profit warning announcement. This study was aimed at establishing the Effect of Profit warning on the share price of the companies listed at the Nairobi Securities Exchange. Secondary data of the share prices of companies listed at NSE over a period of five years from the year 2008 to 2013 was collected from Nairobi Securities Exchange. The data collected was analyzed according to NSE sector segment using SPSS version 21 and presented in the form of tables and graphs. To analyze the data and answer the research questions, event study models was used and the results’ significance tested using t-tests and z-tests at 95% significance level and ANOVA. The findings of this research indicates that profit warning has negative effect on the stock prices in Kenya with only exemptions where it is released earlier in the financial year and is accompanied with an optimistic information that things may be better towards the end of the year.