The relationship between earnings announcements and stock prices at the Nairobi securities exchange

Abstract

The purpose of this study was to establish the relationship between earnings announcements and stock prices at the Nairobi Securities Exchange. The specific objectives of the study were to determine the effect of interim earnings announcements on stock prices at the Nairobi Securities Exchange, to determine the effect of annual earnings announcements on stock prices at the Nairobi Securities Exchange and to determine the relationship between the interim and annual earnings announcements on stock prices at the Nairobi Securities Exchange. This study adopted a descriptive design. Descriptive design explains the relationship between two or more variables of the study. It helps in explaining the relationship between interim and annual earnings announcement at the Nairobi Securities Exchange. The target population for this study was all the 64 companies listed at the Nairobi Securities exchange from 2012 to 2016 study period. The sample consisted of 7 companies that continuously announced interim and annual earnings during the study period. A purposeful sampling method was employed for the study. This study used secondary data from the Nairobi Securities Exchange database. This method of data collection was chosen because stock prices of listed companies were readily available at the NSE library. The study found out that at all the companies studied, both interim and annual earnings announcements had significant effects on stock prices. A conclusion was therefore drawn that both announcements carry relevant information that influences stock prices. The study found inefficiency in the stock market and therefore recommended the government to strive towards attaining sustainable levels of market efficiency. Policy makers are recommended to act as a key to determining a clear policy framework for the Kenyan stock market. The government through its regulatory bodies; Capital Market Authority and Nairobi Securities Exchange are recommended to ensure that laws governing insider trading are adhered to by all participants in the stocks market. The study also recommended the government to design training programs to create more awareness in stock markets activities. The study also recommended the companies to ensure that they release timely and accurate information to enable investors to make accurate decisions. The study further suggested more research to be done on the efficiency of Nairobi Securities Exchange by incorporating more companies, lengthening the study duration, lengthening the event window, and incorporating more emerging markets in Africa