Factors That Influence the Performance of Initial Public Offering at the Nairobi Securities Exchange in Kenya

Abstract

This study focuses on the factors that influence the performance of initial public offering in the Nairobi Securities Exchange. The objectives of the study were to determine; the relationship between sales volume turnover, the relationship between profitability and the relationship between asset base and the performance of initial public offering. The study adopted a descriptive research design. The sample size of the study was 8 companies who issued initial public offering between the periods of 2001-2011 and were listed at the Nairobi Securities Exchange. Secondary data was gathered from past published scholarly articles explaining on profitability, asset base and sales turnover of the firms, this study focused on firms listed in the main market segment of the Nairobi Securities Exchange during the period of 2011-2015. The data obtained was analyzed using the multiple regression analysis method through the use of statistical package for social sciences (SPSS) which was applied to code, enter and compute measurements of the multiple regressions for the study. From the study it was found that there was evidence of a positive relationship between asset base and IPO performance with a correlation value of 0.299, while a correlation value of sales volume turnover and IPO performance yielded a value of 0.213 and between profitability and IPO success had a correlation value of 0.097, the study also revealed that 6.5% of the variation in IPO performance was explained jointly by the independent variables under study (profitability, asset base and sales volume turnover) and that 93.5% constituted of other factors which were not studied in this research. The research further revealed that the regression model predicting the relationship between the IPO performance and the independent variables deduced that holding all the other factors constant, a unit increase in asset base would lead to an increase in IPO performance, a unit increase in sales volume turnover would lead to a increase in IPO performance and a unit increase in profitability would lead to a decrease in IPO performance. From the study conducted it can be concluded that the variables which were under study (profitability, asset base and sales volume turnover) played a small role in influencing the performance of initial public offering at the Nairobi Securities Exchange and that many other variables need to be studied to give a clear depiction of initial public offering performance. The study recommends that further research needs to be done in investigating the influence of variables such as corporate governance, share price, age of the firm, level of debt or equity, company market share, political events like elections, government‘s privatization programs, global economic crises and the flow of foreign direct investment and its relationship with initial public offering performance.