Short run performance of initial public offerings: A case of Nairobi Securities Exchange
This study is aimed at building and improving the growing literature on performance of IPO’s at the Nairobi Securities Exchange. It aims at identifying whether the companies relative value is higher than that of its industry peers after floating the shares. The study examined all the 8 IPO’s issued between 2005 and 2011 and analyzed the value of the company within 30 days after the IPO. Much of the studies that have been carried on this issue have been on measuring the performance by use of Marginal Adjusted Initial Return (MAIR), Marginal Buy and Hold Return (MABHR) and Cumulative Marginal Return (CAR). This study deviates from these methodologies and instead measures the market to book ratios and market capitalization to come up with a conclusive evidence of the study. Results obtained from the analysis showed that 75% of the companies studied had a higher relative value during the period under study than their related industry peers operating in the same sector. There is evidence from the study that the offering price of IPO’s is under priced since in all the cases, there was a huge increase in the first day share prices thereby indicating that the offering price is not fairly priced in comparison with the market price.