The Effect of Publication of Financial Statements on Stock Returns of Commercial Banks Listed on the Nairobi Securities Exchange

Abstract

The objective of the study is to establish if there is a relationship between the stock returns and the publication of the financial statements of listed commercial banks at NSE. Event study methodology was used to analyze stock returns to financial statement publication, event study enables determination of change of stock prices hence changes of returns by a particular change of event. An event period of 60 days was selected, 30 day prior to the announcement and 30 days after the announcement day was used to analyze the share prices movement during the period of announcement. The announcement day was represented by 0.The data collected incorporated 7 listed commercial banks under a scope of 2 years (2015 and 2016). Market Model was used to analyze the collected data, market model is a statistical model which relates returns of market portfolio to returns of a particular security hence fit to be used on this research .Actual returns (R) of stock were compared to return on the market, NSE 20 index was used. The abnormal return (AR) was the difference between the actual return from the return of the market and the cumulative abnormal return (CAR) was the summation of AR. For model testing T test was done since it is the standard test to use for a sample test from a population. From the findings, annual financial statements publication is a significant factor that influences the stock returns of listed commercial banks hence this event should be adopted by more companies to be listed at the NSE to better investors‟ returns. Reaction of investors behavior was observed through stock price movement before the announcement and goes on even after the publication of financial statements before the market stabilizes after a while .To check on abnormal reaction to prices of stocks the public need to be educated to encourage long-term investing, reduce panic trading and also improve on providing information on how stock trading works hence encourage more potential investors to participate.