TITLE:
Theoretical Review of Effect of Firm Specific Factors on Performance of Initial Public Offering Stocks at the Nairobi Securities Exchange in Kenya
AUTHORS:
Anaclet Biket Okumu, Tobias Olweny, Willy Muturi
KEYWORDS:
Initial Public Offerings (IPOs), Performance, Automation, Firm Specific Factors, Nairobi Securities Exchange
JOURNAL NAME:
Open Journal of Business and Management,
Vol.9 No.1,
January
29,
2021
ABSTRACT: During the period 1994 to 2020, a total of 18 firms in
Kenya floated 16,530,781,060 shares at the Nairobi Securities Exchange
(NSE) under Initial Public Offerings (IPOs) raising over Kshs 91
billion. These stocks were significantly over-subscribed
with the highest hitting 830%. The NSE
became fully automated in 2006. Similarly, in Africa between 2010 and 2019 there were a total of 215 IPOs
raising over Kshs 1.6 trillion. This could be explained by divergence of
opinion hypothesis. The
initial returns were positive. However, in the long run, most of the firms
underperformed. This under performance leads to losses
incurred by investors and possible collapse of brokerage and investment firms
leaving investors with a bitter taste. This study will undertake to establish the effects of firm specific
factors on IPO stock performance at the NSE in Kenya. The specific objectives
will be: to establish the effect of firm size on performance of IPO stocks at
the NSE in Kenya, to determine the effect of age of firm on performance of IPO
stocks at the NSE in Kenya, to evaluate the effect of firm board composition on
performance of IPO stocks at the NSE in Kenya, to establish the effect of firm
ownership structure on performance of IPO stocks at the NSE in Kenya, and to
analyze the moderating effect of automation on the firm specific factors and performance
of IPO stocks at the NSE in Kenya. The study will be built upon major
theoretical streams: Random Walk theory, Winners curse theory, Dow Theory, Signaling
theory and Agency theory and contextualize them to firm specific factors and
performance of IPO stocks. More studies have previously been undertaken on the
pricing of IPO at the NSE in Kenya and the few that studied on performance of
IPO stocks at the NSE in Kenya have provided mixed findings depending on the
methodology used. None of the studies as far as research has shown have considered the automation of NSE in
Kenya as a moderating effect of performance of IPO stocks. The sample
size will be the same as population of 18 IPO firms between 1994 and 2020 with 8 IPOs during
pre-automation and 10 IPOs post-automation
period. This will be a longitudinal and event study that will adopt a
descriptive study design. Data will be
analyzed using the Econometric Views (Eviews). Hausman test, Augmented Dickey
Fuller (ADF) test and other diagnostic tests will be applied to the panel data.
The Capital Assets Pricing Model (CAPM) and the Nairobi 20 Share Index will be
used as the benchmarks of performance of IPO stocks.