An empirical analysis of the performance of initial public offerings at the Nairobi stock exchange

Abstract

Literature in developed markets has extensively documented the existence of three anomalies in the pricing of initial public offerings (IPOs) of common stock. The phenomena have been are recognizable as (1) the IPO under pricing, (2) the long run IPO underperformance, and (3) the "hot issues" IPO market. Hitherto, evidence from the emerging regarding these anomalies has been scanty and inconclusive. This paper contributes to IPO literature, by adducing NSE evidence on the first two of the three anomalous regularities. We document evidence supporting the unequivocal initial under pricing of IPOs at the NSE. Evidence on the long-run IPO under-performance leads to mixed conclusions depending on how long the long-run is. There is evidence that IPOs underperform the market on their third anniversary; this underperformance, however, dissipates so that by the fifth anniversary the IPOs are doing just as well as, if not better than, the market benchmark. These findings have implications for investors, market regulators and company management