The effect of share valuation method used by kenyan companies on the ipo/seo outcome
Abstract
This research investigated the effect of share valuation method used by Kenyan
companies on the IPO/SEO outcome. The author explored the extent to which Kenyan
companies use the various valuation methods and their effect on the initial return at
the close of the first day of trading. The IPO offer prices and the initial return as well
as the valuation method for the companies which issued IPOs between 2006 to 20 II
were analyzed. Secondary data was used and data was analyzed using both descriptive
statistics and correlation coefficient analysis. Average under pricing of 57.71% was
observed in Kenya IPOs for the period under study. The Correlation between the offer
price and the initial return was 0.341745, implying that the share prices and the
valuation method tested do not significantly influence the IPO initial return on the
first day of trading. The magnitude of the over subscription and under subscription
together with the reasons for the choosing certain valuation methods have also been
briefly explored. The study noted that in Kenya two main valuation methods are used
for valuation of IPOs by most company. These two valuation methods are Discounted
Cash Flow method and Company Comparable Multiples. The study concluded that
valuation method alone does not significantly influence the outcome of the share on
the first day of trading in the Kenyan market. The magnitude of the over subscription
and under subscription is also briefly explored.
Citation
Master Of Business AdministrationPublisher
University of Nairobi