Effect of Financial Reporting Quality on the Market Price Per Share of Firms Listed in the Nairobi Securities Exchange

Abstract

In the recent past both the local and the international markets have a witnessed declining quality of financial reporting. The poor-quality financial reports have led to a mismatch between the inherent values of shares and the book values hence contributing to market inefficiencies. This study sought to provide empirical evidence of the impact of poor financial reporting quality on the Market Price per Share. The objective of the study was to examine the effect of financial report quality on the share price. Financial reporting quality was measured in terms of the qualitative characteristics of identified by IASB.During the investigations, the descriptive research design was applied. The target population comprised of firms listed in the Nairobi Securities Exchange between 2011 and 2017. However, since financial institution are under tight regulations that greatly impact on their reporting, they were not investigated. From the population, a sample of 60 firms were sampled using the stratified random sampling method. Out of the 60, 13 were dropped for either having incomplete information or not having data on their share prices. The study used content analysis in examining quality of financial reports of the listed entities. Thereafter, inferential statistics of correlation and regression were used to show the relationship between financial reporting quality and the Market Price per Share.The findings of the study were that a change in Relevance, Faithful Presentation, Understandability and Timeliness leads to an increase in share prices while an increase in comparability leads to a decrease in share prices.