IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 19, Issue 5. Ver. VI (May 2017), PP 24-28 www.iosrjournals.org
What Influences Short Run Performance of Initial Public Offerings in Kenya? Francis, Mambo Gatumo United States International UniversityP.O Box 18321-00100 Nairobi- Kenya
Abstract: Share relevant information access in a capital market influence the performance of an initial public offering. Information access depends on the degree the of efficient market hypothesis. The purpose of this paper was to establish the factors that impact the performance of initial public offering in the short run. The population for the study comprised of all the firms listed between 2000 and 2014 in Nairobi securities Exchange. Causal design was applied through regressing the raw total return against the determinants. Both descriptive and inferential statistics were used. The study finds that offer price, offer size, subscription rate, turnover, net assets, age ,market return and market volatility were not statistically significant in explaining the performance of initial public offering in Kenya. The study question the aces of the prospectus by the investors. Furthermore, the prospectus is a technical document understandable by the professionals.Finally the study propose that investment civic education be rolled out to the public by capital Markets authority, the regulator of capital markets in Kenya. Keywords: Determinants, Initial public offerings, raw total return, short run.
I.
Introduction
Hofstede ( 2001)observed that Africa was rated low while United States of America (USA) was rated moderate in terms of long term and short-term orientation. He alluded that cultures whose members prefer early gratification of their returns are short term. An Initial Public Offering investor who flip their shares on the first days of trading desires to receive returns early. The size of return, in the short run, is a compensation for risks. Reilly and Brown (2009) state that an investment return is a compensation for time value of money, expected inflation and risk involved. A flipping investor is compensated for risk only because time value of money and expected inflation are ruled out because of short time horizon. In USA, Aggarwal(2003) found that initial public offerings flipping account for 19% of the trading volume and 15% of the shares offered. In addition, the study established that flipping of initial public offeringsis more frequently on hot markets than cold markets. Based on the short term/long term orientation, African IPO investors, in general and specifically Kenya may flip more. An initial public offering is the first sale of shares to the public by a private company. Saravanan and Chandran (2014)state that an IPO is the issuing of new ordinary shares for the first time to the public. Therefore, an IPO is a means of raising permanent capital by a company. Companies may raise permanent capital either internally or externally. Internally, a company may use its retained earnings while, externally right issues, initial public offerings and initial private placing may be applied. The use of retained earnings is more of capital allocation. Right issues refer to offer of extra shares to existing shareholders. The initial private offering is raising permanent capital through earmarked investors, instead of offering the shares to the public. Shefrin and Statman(1985) conclude that investors portray desire to sell winners and ride on losers. This finding supports prospect theory by Tversky and Kahneman (1974). The rationale for this belief was mental accounting, achoring and regret aversion by investors. Odean (1998) analysed 10,000 accounts of large brokerage firms and affirms that an investor preference for realizing winners instead of losers hold. What factors influence the performance IPOs in Kenya in the short run? This paper undertakes an empirical review of IPOs in Kenya to establish the determinants of IPO performance in the short run.The rest of the paper address literature review, methodology, results and findings, discussions and recommendations and references.
II.
Literature Review
Baker and Uzaki (2012) analyzed 476 IPO firms listed between 2000 and 2011 in Malaysian Stock Exchange. The finding was Malaysian IPOs were underpriced by 35.87 %. The study, further inform that offer price, offer size company age and type of industry determine the degree of underpricing.Furthermore, in India, Bhullar and Bhatnager (2014) examined 265 IPO firms listed between 2007 and 2012. The study reveals that oversubscription, time delay, size of IPO offer impacted the level of underpricing, although the study did not specify the magnitude of underpricing. Dell'Acqua, Etro, Teti, and Murri ( 2014) examined 129 IPO firms listed between 2001 and 2012 in Italy. The study found average underpricing by 6.75 %. The study, further shows that firm size, aftermarket risk, DOI: 10.9790/487X-1905062428
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