Title: Earnings Announcements and Stock Returns among Listed Firms at the Nairobi Securities Exchange, Kenya
Authors: Millier Achieng Ochingo, Tobias Olweny, Tumaini Mutugi Mwikamba, Cynthia Stella Waga
Volume: 10
Issue: 5
Pages: 50-60
Publication Date: 2026/05/28
Abstract:
Corporate announcements, particularly earnings announcements, significantly influence stock returns by providing critical information on a firm's profitability, revenue trends, and financial health, thereby shaping investor decisions and market dynamics. However, investor reactions are not always uniform, as behavioral biases, firm-specific characteristics, and prevailing market conditions may amplify or delay stock price adjustments, highlighting the complex role of earnings announcements in influencing stock return volatility. This study examined the effect of earnings announcements on stock returns among firms listed at the Nairobi Securities Exchange. The study was anchored on the Adaptive Market Hypothesis, which posits that market efficiency evolves over time based on investor learning, adaptation, and changing economic conditions. A causal research design and event study methodology were adopted to examine stock price reactions to earnings announcements. The target population comprised all 60 firms listed on the Nairobi Securities Exchange, with 19 earnings announcement events identified between 2014 and 2024. A census approach was employed, whereby all identified events were included in the analysis. Secondary data on earnings announcements and daily share prices were obtained from the Nairobi Securities Exchange and analyzed using time-series quantitative techniques. The study computed actual returns, expected returns, abnormal returns, cumulative abnormal returns, and standardized cumulative abnormal returns using the market model and Capital Asset Pricing Model, with statistical significance tested using t-statistics at the 5% significance level. Event windows of 15 days before and after the announcement date were analyzed to capture immediate market reactions and assess the influence of earnings announcements on stock performance. The findings revealed that earnings announcements have a statistically significant negative effect on stock returns among firms listed at the Nairobi Securities Exchange. In the short term, stock prices decline following earnings announcements as investors respond to signals of lower-than-expected performance, declining profitability, or increased uncertainty regarding future cash flows. The study recommends that firms, particularly smaller firms, should proactively manage investor expectations by providing detailed explanations of financial performance drivers to minimize market overreactions. In addition, investor education initiatives should be strengthened to enhance shareholders' ability to interpret earnings disclosures more rationally and reduce reactionary volatility during periods of financial uncertainty.