An Analysis on the long term performance of Initial Public Offerings in the Nairobi Stock Exchange

Abstract

There have been a number of studies carried out that have tried to determine the long term performance of IPOs. The three key issues these studies try and dwell on is the long run under-performance, short term underpricing and the hot issue market phenomena. The effects of the financial crisis of 2007-2008 was felt strongly in America. However there were small ripple effects that spilled over in to countries like Kenya. The studies carried out with regard to the above three phenomena in relation to IPOs and post financial crisis period have been scanty and not entirely conclusive. This project will help the IPO literature, by providing proof on two of the three above mentioned anomalies. The study documented evidence supporting the undisputed underpricing of IPOs at the NSE as compared to the closing first day trading price of the IPOs. With respect to the first phenomena, which was the long run under performance, the results are mixed in the sense that the study concludes that there is no visible regularity when computed against the market benchmarks. The study also proves through the use of wealth relatives that the IPOs are performing similarly to the market on their 5th anniversary to the market.