The Determinants of long run share price performance of initial public offerings - A Case of firms listed at the Nairobi Stock Exchange - time frame - 2000-2015

Abstract

The main objective of this study was to investigate the determinants of long run share price performance of initial public offerings of companies listed at Nairobi Securities Exchange (NSE), Kenya. This study adopted the explanatory research design to understand the influence of financial and non-financial factors on share prices. The study focused on the efficient markets hypothesis (EMH) as well as the fundamental theory of capital markets. The target population was all firms listed at the Nairobi Stock Exchange in Kenya that issued IPOs from 2000-2015. The study used secondary data obtained from the annual reports of the firms. Stata software was used to analyse the data using descriptive and inferential statistics technique. The model used, the Random effects model, was significant at 10% level of significance. However, looking at the predictors, for the financial factors, the log of profits and log of Equity were all not significant. For the Non- financial factors, the Number of shares was significant whereas Age was not significant in the prediction of share prices. The implication of this is that the number of shares issued should be a key factor to be considered by investors analysing IPOs as well as in making decisions on what shares to invest in. This is important factor for companies issuing shares, as well as for the regulator to pay keen attention on number of shares on offer as this is generally determined arbitrarily by issuing companies. The study was limited in so far as looking at only companies at the Nairobi Stock Exchange that issued shares between 2000 and 2015, hence a relatively small sample. Additionally, the independent variables looked at only resulted into the model with an R-Squared value which only partially explained the movement in share prices. Further research needs to be undertaken to consider additional factors that may have been omitted.