Long Run Performance of Initial Public Offerings at the Nairobi Securities Exchange

Abstract

This study was aimed to investigate the long-run performance of initial public offerings of firms listed at the Nairobi Securities Exchange so as to address methodological gap which resulted to inconsistent results reported by previous researchers who adopted different research methodologies in investigating the long run performance of IPOs of firms listed at the NSE. This study was anchored on the winners curse theory and the efficient market theory and in order to address the research gap identified, the study adopted a descriptive research design. The study population was the 64 firms that were listed at the NSE as at 31ST December, 2014.From the population, 8 firms qualified for the study because they have issued IPOs at the market over the period 2006-2012. Secondary data was sourced from the NSE website and NSE trading data vendors. Market adjusted buy and hold returns (MABHR), mean market adjusted buy and hold returns (MMABHR), abnormal returns (AR) and cumulative abnormal returns (CAR) for the stocks of the firms that issued IPOs at the Nairobi Securities Exchange over the period 2006-2012. The study findings shows that after the issuance IPOs at the NSE, stocks performed fairly well in the first three years of trading and under performed in the fourth year of trading and performed good in the subsequent years of trading. Findings also shows that stocks of the firms that have issued IPOs at the NSE that earned negative returns after the first year of trading also earned negative returns in the subsequent years of trading. On the other hand stocks of the firms that earned positive returns after first year of trading also earned positive returns in the subsequent years of trading. The long run performance of IPOs is a major concern to the whole market: the investors both individual and institutional, CMA, investment bankers, investment brokers and agents. The study recommends that the relevant authorities use the study findings as a source of reference with regard to the long run performance of IPOs issued at the NSE and to evaluate the economic performance of the economy by using the market returns as a basis since high market returns signal good economic conditions while low market returns signal bad economic conditions.