Effect Of Financial Statement Information On Stock Returns Of Firms Listed At The Nairobi Securities Exchange

Abstract

Accounting information mitigates information asymmetries which brings about adverse selection during transactions in the capital market. It also boosts liquidity; this minimizes discounts that firms are forced to issue capital. Accounting information is regarded as the most powerful resource utilized by investors, since investment decisions are made on account of the firm’s stock and price which is reflective of the firm’s future profit. The study was set out to establish the effect of financial statement information on stock returns of firms quoted at the NSE. A descriptive research design was employed to detect the association between variables in all listed firms that had been operational between the years 2014 and 2018. Data collected was analyzed using quantitative data analysis methods whereby inferential statistics: regression and correlation analysis were used. All the study parameters (stock prices, earnings management, ROE, cashflows and dividends) recorded an upward trend during the research period. Research concluded of an existence of a significant connection amid financial statement information and stock prices. Dividends was significantly associated to stock prices while cashflows, earnings management and profitability were insignificantly linked to stock prices. Output from correlation established of an existence of a moderately strong correlation among dividends and stock prices. Similarly, a weak correlation was realized among cashflows and stock prices. There was non-existence of a correlation among earnings management and profits with stock prices. Overall regression model adopted by the researcher was found to be significant since p-value (0.000) was smaller than 5 per cent. Coefficient of determination was found to be 48.1%, which signaled that the regression equation was an adequate fit for the data. Research recommends the need for the government to strengthen its supervision of listed firms to ensure a true disclosure of financial statement. The main shortcoming of this study is that, the researcher has solely relied on secondary data which is historical in nature, and prone to manipulation, this could easily have impacted negatively on the quality of the research findings because this kind of data is easily manipulatable. Another limitation for this study is the time frame. Five years is not adequate to establish a clear relationship between variables. A longer duration of time like 15-20 years can enable the researcher to establish more accurate and reliable research findings.