Strategic challenges faced by corporate firms when going public in Kenya

Abstract

The objectives of the study were to establish the challenges faced by firms issuing public offering in Kenya; to determine strategic implications ofthese challenges; and to establish how corporate firms in Kenya respond to these challenges. Descriptive survey was adopted and semi - structured questionnaires were administered by the researcher as well as discussions with the respondents. The study was a census of all companies which have issued initial public offering in the last 13 years. Data was analysed using descriptive and advanced statistics such as frequencies, percentages, mean scores and standard deviation. Government privatization policy was the main driving factor for issuing initial public offering in Kenya and the other main reason for going public by firms being the need raise capital for growth. The study established younger firms spent less time preparing for IPO as compared to older and more established firms which spent more time making preparations before commencement of IPO issue. It was established that initial public offering led to more than 49 percent ownership surrender to investors by 38 percent of the firms. Retail investors were the major beneficiaries ofIPO's in Kenya as was demonstrated by the proportion ofshares reserved for them. The major strategic issues for issuing firm were diversion of management time, offer timing, approval by regulators, IPO transactions processing, offer price determination and the refund process. From findings, it was concluded that successful execution of IPO strategy require a lean and focused team; scaling down of activities; timely, complete and adequate information; adequate competent and facilitated employees; publicity; and use of state - of- the - art technology. Following findings of the study, it was recommended that: > Superior technology is the bedrock to success in emerging economies such as Kenya. There is need for technology upgrading to partly reduce diversion of management time by adopting video conferencing and accurate market forecasting and real time processing of the IPO transactions including refunds. > Issuing firms should develop strategies for addressing political risks such as manipulation of IPa issue by single or group of influential politicians to the detriment ofordinary investors. > Results showed that firms did not have response mechanisms to price shocks. There is need for issuing firms to hedge investors to losses resulting price shocks in the secondary market. > Future studies should investigate the impact of lockup agreement on share price performance and investor confidence in Kenya.