Effect of earnings announcement on share prices on companies listed at the Ghana Stock Exchange

Abstract

Earning announcement information plays a very important role in the functioning of stock markets both at individual and institutional investor levels. Stock market reaction to earnings announcement has received significant attention in Finance. Price of a security reflects all available information in an efficient market. In an efficient market, share price is a good estimate of the value placed on the security by the market at any point in time and hence abnormal volatility resulting to abnormal gains cannot be witnessed. The ability of the emerging markets like Ghana Stock Exchange to impound financial information and incorporate it into prices to match the risk is in doubt, therefore the need to establish the effect of earnings announcements on share price changes for companies listed at the Ghana stock exchange.

This study examined the effects of earnings announcement on share prices of companies listed on the Ghana Stock Exchange from period of 2014 to 2017. The population size was all listed companies on GSE. A sample of 10 listed companies were selected and 40 documented earnings announcements were collected from 2014 to 2017. The market model was employed in determining the abnormal returns within the 21days event window including 10days pre-event and 10days post-event after earnings announcement. The level of volatility was also tested around the announcement day. The results showed significant abnormal returns and cumulative abnormal returns around the announcement day at 95% confidence level and they are consistent with efficient market hypothesis. It suggests that Ghana stock market is efficient, and earnings announcement has effects on share price. The results also found evidence of high volatility level around the announcement day.