The Effect of Earnings Announcement on Share Prices in Ghana: A Study of Ghana Stock Exchange

Abstract

In an efficient market, information is as plentiful and inexpensive, and the market is expected to immediately absorb any information released to the public. This paper examined the effect of earnings announcement on GSE by analyzing changes in share prices for the period from January 2010 to June 2013. The study population was all the listed companies on GSE and 10 companies were selected for the study. Abnormal returns during an event window of 21 days were determined using the event study methodology by employing the market model on data collected about selected companies. Inferential and descriptive statistics were used to test for significant effect of earnings announcement on share prices. The results obtained indicate that the abnormal returns around the earnings announcement were not significant at a 5 % margin of error and the insignificant cumulative average abnormal returns surrounding the event date are inconsistent with EMH. This suggests that the Ghana stock market does not efficiently adjust to earnings information. It is concluded that earnings announcement depicted no major effect on share prices of companies at the time of the announcement as well as immediately after the announcements.

Keywords: earnings announcement, share prices, event study, confounding effect, efficient market hypothesis, abnormal returns, market returns, platykurtic