The Information Content of Annual Earnings Announcements for Companies Quoted at the Nairobi Stock Exchange
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Date
2010Author
Nyamolo, Kenneth O
Type
ThesisLanguage
enMetadata
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The objective of the study was to examine the information content for annual earnings
announcement for firms listed at the Nairobi Stock Exchange (NSE). A sample of 20
firms that had been consistently listed at the bourse for the five year period beginning
2005 to the 31st December 2009 was used in the analysis.
The study employed the event study methodology to ascertain whether investors relying
on the information release could make any abnormal returns by using the new
information released by firms. The normal returns and the market returns were calculated
and the residual returns determined. These were cumulated and standardized to come out
with the Cumulative Abnormal Returns (CAR) for the firms. After the determination of
the significance of the CARs, it was necessary to explain abnormal returns by showing
that the cross sectional variation in returns across firms is consistent with the theoretical
framework.
The results indicated that the in all the weeks of the five year period, the mean return on
the report period was less than both the pre and post announcement weeks. The
explanatory power or the earnings response coefficient (R2) obtained from these
observations was also quite low ranging between 0.019 to 0.171 which meant that only
1.9 % to 17.1 % of returns variability were explained by the earnings announcement
within the week with regard to market wide events.
The beta coefficients were also less that 1 suggesting that the sample firms’ stock were
less sensitive to earnings announcements. The researcher concluded that the earnings
announcement for the sample firm had no information content and if there was, the
market model did capture them hence not an appropriate model for measuring
information content.
Citation
Master of business administrationPublisher
University of University School of Business