RELATIONSHIP BETWEEN SHARE RETURNS AND SHARE PRICES FOR STOCKS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Abstract

Investors expect to earn returns from their investment in shares and hence they pursue a profit maximization objective. The higher the returns the higher the demand for shares, which in turn causes share prices to rise. This study investigated the relationship between share returns, represented by; earnings per share, dividends per share and price-earnings ratio with market price of shares for companies listed at the Nairobi Securities Exchange during the period between 2010 and 2014. Secondary data was collected from the Nairobi Securities Exchange database and the audited financial statements of all the 65 companies listed at the Nairobi Securities Exchange. Data was analyzed using SPSS version 21 and included both descriptive statistics such as the mean and the standard deviation and the inferential analysis that involved the correlation and multiple regression analysis. The study found out that both earnings per share and dividend per share have a positive significant relationship with share prices. However, price earnings ratio is positive but does not have any significant relationship with share prices. Therefore the study concluded that earning per share and dividend per share positively influence market price of shares listed on the Nairobi Securities Exchange. The study therefore recommends that companies should come up with an optimal dividend policy for dividend payment as dividends affect the market price for shares. In addition, managers of companies listed on the NSE should enhance the earning per share as they positively influence the market price for shares.