Effect of interim financial statement announcement on stock return and volume of share traded of listed commercial banks in Kenya

Abstract

Interim reports have become another important instrument that allows companies to communicate with its shareholders in providing timely information. They enable investors to make economic decisions whether to retain, buy or sell their shares. The first chapter involves the background of the study, detailed discussion on the announcement of interim reports and the relationship between interim reports, stock returns and traded volume, research problem, research objectives; to evaluate the effect of interim financial statements announcement on stock return and traded volume. The chapter also explains the significance and justification of the study. The second chapter is the literature review which involves the theories related to interim reports and related studies done on the impact of interim reports on stock return. Chapter three is research methodology. The general purpose of the study was to evaluate the effect of interim financial statement announcement on stock return and traded volume of listed commercial banks in Kenya. The study was carried out through event study methodology focusing on three listed commercial banks. Secondary data obtained from Nairobi Stock Exchange was used to analyze changes in share price and traded volume from 2009 to 2013. Data from a sample of three banks namely; Equity bank, Barclays bank and standard Chartered was used to make conclusions of the whole population. Abnormal returns during an event window of 15 days were determined using a market model and trading activity ratio was calculated. According to this research interim financial announcement were informational events that caused increase in stock return and thus the information made by the companies was useful in valuing securities. Further research findings showed that abnormal returns and cumulative abnormal return around the announcement of interim financial statement were positive. The study concluded that security prices react to interim financial statement announcement and thus the study supported the semi-strong form efficient market hypothesis since stock prices adjust to public information. The recommendation of the study in order to reduce abnormal returns is that CMA should ensure compliance with insider trading laws, guidelines, rules and regulations by effectively monitoring the market