Influence of announced earnings per share on the share prices of companies quoted in the Nairobi Securities Exchange

Abstract

Earnings Per Share is a key tool in the evaluation of the performance of a company in terms of the returns to shareholders. The Impact of Earnings Per Share (EPS) on stock prices is therefore an area of interest to researches, investors and shareholders in seeking to understand the variables behind the movement of the stock prices. Small and Brown (1968) noted the drifting of share prices share prices upon announcement of the earnings while Fama (1970) on theory on Efficient Market Hypothesis tried to understand the pattern of the share prices in reaction to information. Various studies have been done to understand the reaction of the stock prices to the announcements by companies, Mohammed (2010) established that announced earnings have an effect on the prices, Mbaka (2010) studied on the effect of dividend declarations and Odumbe (2010) studied on the effect of bonus announcements establishing the facts of the stock prices reacting to announcements. In this paper the research was to determine the effect of the announced earnings per share on the share prices of companies listed in the Nairobi Securities Exchange. The aim of this research was to find out if there is any effect on the announced earnings per share on the share prices of the companies listed on the Nairobi Securities Exchange. The sample was the companies that have consistently appeared on the NSE-20 share index for a period of 5 years from 2006 to 2010.A statistical study using the Statitistical Package for Social Sciences (SPSS) was used to asses if there is an effect on the share prices of the companies by the announced earnings per share. The study found out there is an effect of the announced earnings per share on the share prices of companies on the Nairobi Securities Exchange. The effect was identified to be stronger after the announcement of the earning per share.