Abstract
This study focuses on examining the relationship between stock prices and earnings surprises in quoted companies of Nigeria. This study applied a longitudinal research design which studies the effect of earnings surprises on stock prices using panel data. A sample of 64 companies was chosen to study in all sectors of the Nigerian Stock Exchange. The research data were obtained from secondary sources of the annual reports for the selected companies covering the period from 2013 to 2017. The measurement for earnings surprises used in the study is the residual or unexplained component of earnings persistence model commonly referred to as first-order autoregressive AR (1) regression of reported earnings. Were, the data analysis was carried out by regression using the generalised least squares technique. The regression results for positive earnings surprise shows that share prices react negatively to positive surprises with a coefficient of (-2.4109) in tandem with the return news hypothesis which suggests that positive earnings news results in a negative stock-price reaction. The negative earnings surprise results show that stock prices react positively to negative earnings surprises with a positive coefficient of (0.1136). This is in line with the premise of return news, which indicates that negative earnings news leads to a positive reaction to the share price. The study recommends that there is a need to regulate the stock market to improve the level of market efficiency in stock markets. This will improve the rate at which earnings news will be reserved at stock prices. Secondly, there is a need to improve investor confidence in the disclosed profits made by companies.
Highlights
The Stock market reactions to earnings surprises were a significant concern among investors and company’s managers
This is in tandem with the return news hypothesis, which suggests that negative earnings news results in a positive stock-price reaction
Earnings surprises and its effects on stock prices is an issue of concern to any would-be investor, Stock market reactions to earnings surprises have been a significant concern among investors and companies
Summary
The Stock market reactions to earnings surprises were a significant concern among investors and company’s managers. In an attempt to make accurate investment decisions, investors sometimes seek the advice of Professional Analysts to forecast future earnings of companies they wish to invest in Such a forecast is heavily relied upon can impact positively or negatively on the company’s stock prices. The fact that there is no standardised system of estimating earnings by analysts in Nigeria made this research very critical to any would-be investors It should be of interest in how the share prices of companies respond to either positive or negative surprises. These hypotheses were formulated: H1: Positive earnings surprise has no significant relationship with stock prices
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