dc.description.abstract | This study investigates stock returns and trading activity reactions around annual earnings
announcements for listed companies at the Nairobi Stock Exchange (NSE) to verify" whether
these announcements possess informational value. The event study is conducted on a
portfolio of thirty (30) securities which made earnings announcements over the period of five
calendar years from January 2002 to December 2006. This study contributes to the -:,dy of
empirical research focused on the anomalies on the NSE. This study empirically examined if
security prices and trading activity proxied by trading volume change in response t<. earnings
announcements. For this purpose, the study investigated \ net.. er the magnitude of the price
and volume changes (without respect to sign) is larger on the announcement day than during
the non-event period. An analytical study was conducted in which quantitative data was
collected and analyzed, that is, across the sampled companies an:' then through t::11": (cf the
event study). The sn dy relied on secondary data available at NSE database on daily closi.ig
share prices and trading volumes. The sample consists thirty (30) active listed companies in
the Main Investment Market Segment (MIMS) that made annual ear. ings announcz-nents
and with trading records on the NSE. Data was analyzed using event study methodol )g:
based on the market model of Sharpe (1964) to eliminate market-wide elements of price and
volume changes. Descriptive statistics used are thus, the mean, ordinary least square (OLS)
regression analysis and t-statistic to analyze data collected on daily close share prices and
trading volumes of sampled companies at NSE. The empirical results is that the
average abnormal returns and average abnormal volume on announcements days are
significantly larger than zero as compared with the non-event period. Therefore, the null
hypothesis that states "stock returns and trading activity for quoted companies,' share' NSE
do not react to earnings announcements" is rejected and alternative hypothesis that s
"stock returns and trading activity of quoted companies' shares at NSE react to carrings
announcements' is accepted". The findings are consistent with the prediction that earnings
announcements possess informational value. | en |