Changes In Share Prices As Predictors Of Accounting Earnings

Abstract

This study examines the predictability of accounting earnings using changes in share prices of companies listed at the Nairobi Stock Exchange during the 1996 to 2001 period. From data obtained at the Nairobi Stock Exchange, yearly changes in accounting earnings were calculated for all the companies. Weekly changes in prices of shares were also calculated for these companies and then a summary of total positive changes, total negative changes and total zero changes for each of the companies was done. Out of between 43 to 53 companies for the six year period, empirical results do indicate that share prices have a predicting ability on the accounting earnings. Results were obtained for companies which had positive changes in share prices being followed by either positive or negative changes in accounting earnings and also for those with negative changes in share prices being followed by either negative or positive changes in accounting earnings. The results shows that, on average about 60.38 % of the companies had their share prices moving in the same direction with accounting earnings. These findings are consistent with common findings in literature (Forster 1984) that share prices can predict accounting earnings