The effect of an IPO on the share performance of industry rivals - an event study analysis of the Nairobi Securities Exchange

Abstract

The research project analyzes the impact an Initial Public Offering has on the share performance of industry rivals. Access to funds is one of the key processes of firms and an IPO is one of the channels that firms seeking better growth opportunities will pursue. In regard to the growing market of the Kenyan industry, more firms are expected to list at the Nairobi Securities Exchange and it will be of interest to study how an IPO will impact the share performance of an industry cluster. This research uses an event study approach to analyze the share performance of industry incumbents for the time period 2004 to 2014. The research finds that an, IPO has significant. Impact on the incumbents share performance and the significant effect is either negative or positive especially when the listing company offers similar services. This research also finds evidence that there is an insignificant impact when the listing company offers totally different services in comparison to the incumbents. The data is collected from the NSE as well as the websites of companies that have undergone an IPO.