An Investigation of the Effect of Announcement of Earnings and Dividend on Price and Volume for Listed Non-Financial Firms at The NSE for the Period 2010 - 2013

A Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)This study was conducted with the aim of finding out the effect of earnings announcements on both price and volume for the non - financial subset of firms at the NSE. The study had the following three objectives: To determine the effect of earning announcement on individual stock prices of non-financial firms listed at the NSE; To determine the effect of earning announcements on cumulative stock prices of non-financial firms listed at the NSE; To determine the effect of earnings announcement on the stock volume of non-financial firms listed at the NSE. The study was an event study that adopted a descriptive survey design methodology. The population of the study constituted all listed non-financial firms at the NSE during the period 2010-2013. The sample of 30 was picked on the basis of a pre-defined criterion. Analysis was conducted through the mean adjusted model and results were tested for significance using a t-test. The study found Market Adjusted Abnormal Returns to be significant with a p value of 0.002419 < 0.05 at the 5% level of significance indicating that there is a significant difference between stock and market returns during the window period. The study also found Cumulative Abnormal Returns to be statistically significant at the 5% level with a p value 0.001258 < 0.05 indicating that earnings announcements contain relevant information to investors which are fully impounded in stock prices prior to or almost instantaneously at the time of announcement. Finally, the study also found that excess stock returns were statistically insignificant at the 5% level with a p value 0.459772 > 0.05. This meant that stock volumes were not significantly affected by earnings announcements. This result was contrary to the findings on MAAR and CAR above and presents a paradox with a possible explanation being that investors take time to watch price movements before offloading or increasing their stocks. The study concluded that the market is fairly efficient since individual stocks reacted instantly to earnings announcements. It was similarly concluded that the market was fairly efficient since cumulative stocks react instantly to earnings announcements. However, since the study established that stock volumes did not instantly react to earnings announcements, the third conclusion was that unlike stock price reaction, investors adopted a wait and see approach and only offloaded or acquired stock on the basis of a more sustained pattern and hence a slower reaction of volume . Based on the findings, the study recommended that the NSE should continue on its efficiency path since more efficient markets reflect fundamental prices