A comparison of the financial performance of companies before and after going public quoted at the Nairobi Stock Exchange

Abstract

The study sought to find out if there is significant difference in profitability, liquidity, leverage and activity and also the overall financial performance of companies before and after going public. The study analyzed fourteen companies which went public between 1984 and 2000. The study used Balance Sheets and the Income statements to compute financial ratios which were the basis of the study. The ratios analyzed were; profitability, liquidity, leverage and activity ratio. The data was analyzed using the MS Excel. Hypothesis testing was done using the student's t-test at 95% confidence level to find whether there is difference in the financial performance before and after companies go public. The findings showed that profitability declined after IPO then increased gradually after the first two years. Liquidity was stronger in the post than in the pre-period. Both leverage and activity improved tremendously after companies went public. The overall financial performance though not significantly different at 5% level of significance started to rise in the first year and in the subsequent years after. Generally the findings showed that going public resulted to improved results since companies perform much better after they go public. The decision to go public affects the financial performance of companies in a positive way. The study concludes that public markets should be tapped and is appealing for companies with large current and future investments, high leverage, and high growth.