Determinants of Initial Public Offerings Timing in Kenya

Abstract

One of the most critical events in a company is when it issues its shares to the public followed by subsequent listing on a securities exchange market. The timing of when to issue this shares is of great importance to the success of the company. In line with wealth maximization strategy, CFOs and managers need to factor in relevant conditions that will result in a favorable issue price and subscriptions. This study sought to establish the determinants of IPO timings in Kenya. This was done through analysis of data on determinants of IPO timings collected from CFOs. The CFOs were grouped into two main categories; those whose companies had issued IPOs and those that hadn‟t issued but met the qualifications of issuing. The findings indicated that need for capital to finance company growth was the most important determinant of IPO timings in Kenya, this was then followed by macroeconomic growth. Stock market expansion resulting from investors‟ optimism, conditions in the issuers business sector and investors interest in the type of business were also considered to be important determinants of IPO timings. Interest in IPOs by companies in the same business sector was viewed as the least important determinant of IPO timing. The study also sought to establish if there was occurrence of hot market issues. Hot market issues involve the clustering of IPOs indicating market timing attempts where CFOs seek to benefit fromm opportunity for wealth maximization. The study didn‟t find evidence of hot market issues at the NSE. The project therefore proposes consideration of determinants of IPO timings by companies intending to issue IPOs and the creation of an efficient IPO listing process that will enable firms take advantage of favorable determinants of IPO timing.