An Analysis of the Long-Run Performance IPOs and Effects in the Kenyan Stock Market
Abstract
The pricing behavior of Initial Public Offers (IPOs) has been one of the great mysteries of modern corporate finance. An entity that desires to initiate an IPO in Kenya has to first obtain the authorization from Capital Markets Authority (CMA) before it can carry out an IPO. Before CMA considers an IPO proposal from any entity, the entity must first comply with the legal requirements. The study investigated the long-run performance Initial Public Offerings (IPOs) and effects in the Kenyan stock market. The study used descriptive survey research design. The target population for the study was 64 listed companies. A total of six companies which made IPOs between 2007-2014 where considered from the population. Data used was purely secondary data from the NSE website and individual company website. Collected data was analyzed using Mean Adjustment Buy Hold Returns (MABHR) and Cumulative Abnormal Returns (CAR) and test of significance at 95% confidence level. The finding indicated that using MABHR methodology IPOs over performed the market by 0.17%. Co-Operative Bank Ltd, BRITAM and Home Afrika over performed the market by 0.20% 0.40% and 1.12% respectively for the long run months of trading. Access Kenya Group, Kenya RE and Safaricom underperformed the market in 60 months of trading by -0.13%, -0.14%, and -0.44% respectively. Using CAR methodology IPOs underperformed the market by 0.49%. Access Kenya and Co-Operative Bank Ltd over performed the market by 0.61% and 1.04% respectively for the 60 months of trading. Kenya Re, Safaricom, BRITAM and Home Afrika underperformed the market in 60 months of trading by -0.33%, -1.41%, -1.09 and -1.76% respectively. The MABHR t-test results show that there was a significant difference between the short run and long run of Co-operative and Home Africa and insignificant MABHR t-test between the short run and the long run of Access Kenya, Safaricom, Britam and Kenya Re. Further, CAR t-test results show that there was a significant difference between the short run and long run of Access Kenya, Kenya Re and Britam and insignificant CAR t-test results between the short run and the long run of Co-operative Bank, Safaricom and Home Afrika. The study recommended for the implementation of policies by the NSE management so as to have a consistent performance.
Keywords: Initial Public Offers, Long-run, Short-run, Performance and Kenyan Stock Market
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