The effect of profit announcement on share price reaction in Johannesburg Stock Exchange top 40 financial service firms

Abstract

This research examined the effect of profit announcements on share price reactions in the top 40 listed financial services firms on the JSE. Therefore, the objectives of this study were (1) to determine the effect of profit announcements on share price reactions within the month of profit announcements in the JSE's top 40 listed financial services firms and (2) to assess the effect of profit announcements on share price reactions after one month of profit announcements in the JSE's top 40 listed financial services firms. This study employed a positivist research paradigm, a quantitative method, and a correlational research design. The sample size for this study contained five (5) of the best-performing Top 40 JSE-listed financial services firms from 2010 to 2022 for thirteen (13) years. The study utilised secondary data from various sources. This study used a random effects model. The study found a positive relationship between net profit and share price within and after the month of profit announcements. However, the results revealed that net profit has a highly positive relationship with share price a month after the announcement compared to within the month of the announcement. Furthermore, the findings are aligned with empirical literature, which has determined exchange rates, stock market capitalisation, inflation, GDP, and market indexes as other key variables affecting share price reactions on profit announcements. The results of the controlling variables discovered that the correlation between share prices and the exchange rate is positive but weak. Likewise, the same can be said about stock market capitalisation. In contrast, inflation and GDP have a negative relationship with share prices. The study recommendation for future researchers is to use a larger sample size of companies in the Top 40 JSE-listed financial services firms, as it would be interesting to assess if increasing the sample size would generate results that differ. This study also recommends that investors pay attention to profit announcements to make informed investment choices.