Firm specific determinants of under pricing ipos in Kenya:

Abstract

This paper carries out a survey of eight companies to evaluate how the firm specific determinants selected in the study influence IPO under pricing at the Nairobi Stock exchange. The period of the study was January 2006 to December 2008 which is the period the NSE witnessed a high number of IPO activity. The methodology used is the factor analysis to determine the independent variables to be tested using multiple linear regression analysis at 95% confidence level. Prior studies done in Europe show that age and size are significantly and negatively related to under pricing. On the contrary a positive relationship has been found between under pricing and net earnings in the year before listing. The leverage at IPO is also positively related to underpricing. The results of the study observed that the entire firm specific examined except ownership had an influence in explaining under pricing up to 84.3%. As such these factors affect IPO underpricing. Market return, age, size and leverage had a negative relationship to under pricing. Size and type had a positive relationship to under pricing. As such the results contradict with the results from Europe in some of the factors. When the analysis of variance was performed the only significant variable factor as measured by the t- value was leverage.