Performance Of Initial Public Offerings: The Evidence From Nairobi Stock Exchange

Abstract

Numerous studies have documented three anomalies in the pricing of initial public offerings (IPOs) of common stock: (1) the (short-run) under pricing phenomenon. (2) the "hot issue" market phenomenon and, (3) the long run underperformance of IPOs. Hitherto, evidence from the NSE regarding these anomalies has been scanty and inconclusive. This project contributes to IPO literature, by adducing evidence on two of the three anomalies. We document evidence supporting the unequivocal under pricing of IPOs at the NSE as compared to the closing first day trading price of the IPOs. Regarding the second anomaly, e.g. the long run underperformance, support is mixed: there is evidence that IPOs under perform the market on their third anniversary; this underperformance, however, dissipates so that by the fifth anniversary the IPOs are doing just as well as .if not better than, the market benchmark.