The Effect of Company Performance Awards Announcement on Stock Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

This paper examines the effect of Company Performance Awards announcement on share returns of firms listed at the Nairobi Security Exchange (NSE), in particular the effect of the Company of the Year Awards (COYA) organised by Kenya Institute of Management (KIM). The research focused on listed firms that won the awards either as an overall winner, first or second runner up between the period 2006 and 2015. A descriptive design using the event study methodology was undertaken with secondary data obtained from the NSE and KIM. The information included announcement dates of the awards and the stock market returns. The event window comprised 5 days before and five days after the event with an estimation period of 45 days using the standard market model. Abnormal returns were calculated and test for significance conducted. The finding of this research is that the announcement of winning the Company of the Year Awards does not result in statistically significant abnormal returns at the NSE and concludes that the Company of the Year Awards announcements have no effect on stock returns. This is very consistent with the semi-strong form of the efficient market hypothesis (Fama, 1970) which asserts that security prices reflect all relevant information that is publicly available and the random walk theory (Fama, 1965) which posits that sometimes prices may actually adjust in anticipation of new information even before this is available to the market. In only the year 2015 however, when Jubilee Holding Limited (JHL) won, the abnormal returns were statistically significant therefore the Company of the Year Awards announcement had an effect on the share returns on that particular stock. This research suggests based on the findings that investors at the NSE are more recently taking cognizance of the critical need to improve organisational performance, need to remain competitive by benchmarking with the best in class, and need to assure continuous improvement. That firms that implement tools such as the Business Excellence Models (BEM) to improve performance and eventually win national awards in the current times send a stronger signal to the market leading to increase in shareholders’ value. This research therefore recommends listed firms to participate in Company Performance Awards and use this as an avenue of sending a strong signal to the market on their internal management qualities and reinforce their commitment to continually improve the firm’s performance. This may have a positive influence on their share performance in the stock exchange in the short run.