The effect of ipo’s on the performance of other stocks at the Nairobi stock exchange

Abstract

Over the last three years there has been an upsurge of IPO activity. The reason for this popularity is because of the worldwide trend towards privatization. The IPOs at the NSE have been successful and have been characterized by massive oversubscriptions indicating their potential as well as the popularity. Most studies analyze the performance of companies around their Initial Public Offerings (IPOs). This study focused on returns on pre-IPO, during and after an IPO. This research found that the size of the IPO has no role to influence the market turnover. The question that comes is how the investors show interest towards IPOs; whether they mobilize their investments from the secondary market to the IPO seek alternative sources other than liquidating their existing securities and whether as a result of such fund mobilization, the transaction volumes face any pressure. This study sought to establish whether the interest of investors towards IPOs creates pressure on the performance of other stocks during the Pre-application period (Pre-IPO), the application, allotment and the refund period (AAR), and Post allotment period (Post- IPO). The results suggested that either the market has enormous capacity that the IPO announcements did not have any effect on it, or the prospective investors do not rely on the capital market as they keep huge funds to be invested. Using data from NSE on the daily average market turnover and the turnover of the IPOs during the listing month, the findings indicated that the market turnovers during this period were not affected by the IPOs. The study established that the IPO size has no effect on market turnover. The research recommends that further research should be carried out to find out if the other variables such as share price index and market capitalization are affected by an IPO. Research can also be done to find out the source of investor liquidity during such periods.