Relationship Between Flipping Activity and the Long Run Performance of Initial Public Offering at the Nairobi Stock Exchange

Abstract

This study assesses the relationship between flipping activity and the long run performance of initial public offering at the Nairobi Stock Exchange. A flipping activity is a phenomenon that occurs when there is a liquidation of shares at the bourse. An IPO can be deduced as being letting a company stock to be traded publicly after the listing. The study is themed on flipping activity and long run IPO performance. The Agency and Prospect theory were used in the study. The study identified the determinant of post issue long run performance of IPOs as: IPO underpricing, IPO under performance and information asymmetry. The research design entailed the use of the descriptive time series. The target population was the all the NSE listed companies. The sampling entailed choosing IPO listed companies from the years 1994 to 2013 which were 14 in number. The study entailed use of secondary data obtained from the NSE information desk. The findings show that the IPO share price is pegged upon information of the insiders of company in question and those intending to purchase the IPO. The findings also show that the over subscription of IPOs is attributed to the fact that some IPO are underpriced by external investors. The findings show that subscription level and market return had strong positive correlation. There is need for the NSE and the Capital Markets Authority to continuously market and publicize the usefulness of companies joining the bourse and actively trading so as to minimize risk of losses and also expanding the capital base. There is need to revamp the corporate governance rules and regulations. There should be an inclusive team from the stakeholders participating in the securities market so as to meet an all-round needs of the sector. The electioneering period in Kenya usually has an effect on the performance of the NSE bourse. The key players of the NSE and CMA should harness the way IPO are listed on the bourse so that they may be successful and encourage other would be companies to participate.