The Effect of Corporate Earnings Changes and Cycles on Share Price Valuation of Financial Firms Listed at the Nairobi Securities Exchange, Kenya

Abstract

This study sought to examine the effects of corporate earnings variability on the market share price valuation of listed financial firms in Kenya. Based on the study,this paper explores the influence of changes in corporate earnings and corporate earnings cycles on the share price valuation of financial firms listed at the NSE, Kenya. The study was guided by the efficient market hypothesis and supported by the following theories: Transaction Cost, Signaling Hypothesis and Capital Structure. The research employed descriptive research design with the target population being made of financial listed companies at the NSE. Since the target population was small, a census approach was used to derive the sample for the study and, due to the nature of the study variables, document analysis was used to collect data. Data was mined from organizational databases and reports before being entered into statistical software where it was analyzed through the use of descriptive and inferential statistics. Inferential statistics used included correlation regression and ANOVA. The regression analysis, F statistic, indicated that corporate earnings (R² = 0.052) explained the variations in share price, while earnings cycles did not. The findings showed that changes in corporate earnings significantly determined market share price values where an increase in corporate earnings would result in an increase in the share prices. On the contrary, corporate earnings cycles did not affect share prices of listed financial firms at the NSE. The research recommends further studies in different sectors to establish the effects of corporate earnings variability on share prices of the various sectors. The study is important to listed firms, investors, government and regulators and was delimited to financial listed firms in the NSE who have been listed for a period of over 10 years.