An Analysis of Performance of Initial Public Offerings: a Case of Nairobi Stock Exchange

Abstract

This study analyses the initial returns and long-run performance of Initial Public Offerings (IPOs) using a sample of companies listed on the Nairobi Stock Exchange during the period 1984 to 2001. The study will hopefully provide one emerging market case of international evidence on performance of IPOs. The central hypothesis under investigation in this paper is that IPOs are usually underpriced in the short-run and that they underperform in the long-run yielding negative abnormal returns during their first few years of trading. Existing research on long term returns has tended to follow the IPOs for three or five years after issuance. Based on a sample of 14 IPOs, the results show an average market adjusted abnormal return of 22.57% on the first day returns after the launch of the IPOs with a standard deviation of 24% and a median of 17.42%. This is consistent with previous research on t he initial performance of initial public offerings that has been documented that abnormal returns are obtained during the first day of trading following new issues.