Effect Of Earnings Management On The Stock Returns Of Financial Companies Listed At The Nairobi Securities Exchange

Abstract

This research studied the effect of earnings management on the stock returns of financial firms listed at the NSE, with the objective of investigating the effect of earnings management on stock returns for listed financial firms over the period 2013 to 2017. A descriptive research design was employed in the study. The population of the study consisted of 19 out of 23 financial firms that were listed at the NSE as at 31st December 2017, whereby the four financial companies excluded from the study had incomplete financial statements. The yearly stock returns and necessary information from financial statements for the 19 listed firms in the financial sector were gathered and data was analyzed statistically using SPSS (version 25) to determine the effect that earnings management has on stock returns for these firms. Market to book value ratio and firm size were the controlling variables in the study. The research established that earnings management and market to book value ratio have no significant effect on stock returns while firm size has a negative significant effect on stock returns. The results showed that the intercept was 3.742 for all years. The coefficient for earnings management was found to be 0.045 (p>0.05), meaning that earnings management had no significant effect on Stock returns among financial companies listed at the Nairobi Securities Exchange in Kenya. The coefficient for firm size was discovered to be -0.167 (p<0.05), meaning that firm size had a negative significant influence on the stock returns among financial companies listed at Nairobi Securities Exchange. The study concluded that the coefficient for market to book value ratio was -0.035 (p>0.05), meaning that market to book value ratio had no significant influence on the stock returns among listed financial companies at the Nairobi Securities.