The Relationship Between Seasoned Equity Offerings And Financial Performance Of Firms Listed At The Nairobi Securities Exchange

Abstract

The main objective of the study was to establish the relationship between seasoned equity offerings and financial performance for firms listed at the Nairobi Securities Exchange. Financial performance of firms after seasoned equity issues has received little attention in Nairobi Securities Exchange studies hence this study will add to the body of existing knowledge. The study was causal in nature and the research analyzed all data selected within a specified period of time. The population for the study consisted of all 21 firms that had issued seasoned equity as at 31st December 2012, from which a sample of 10 firms was drawn. The study used secondary data from published audited annual reports of accounts for the sample firms and these were obtained from Nairobi Securities Exchange and Capital Market Authority. Financial data from balance sheets, profit and loss accounts and cash flow statements were used to calculate and analyze return on assets ratio, asset growth, firm size, leverage and growth opportunities. The study used a regression model to analyze the relationship between seasoned equity offerings and financial performance of firms. Control variables namely asset growth and leverage were used in the regression model. F-test was used to determine the fitness of the regression model in analyzing the relationship. The coefficient of determination was used to explain how much of the variations in financial performance were explained by seasoned equity offerings. The results of the study showed an insignificant but positive relationship between seasoned equity offerings and financial performance. The study also showed a significant positive relationship between financial performance, asset growth and leverage. It can be concluded that firms which invest resources towards increasing asset base show greater improvement in financial performance. Seasoned equity offers are important especially as far as raising capital for growth, expansions or acquisitions is concerned. The study recommends that firms to use equity issues in increasing asset base and growth since this translates to improved financial performance. Policies regarding equity issues should be reviewed and made flexible to encourage firms to participate in equity issues. The study concentrated on listed firms whose findings cannot be generalized for all firms hence further studies can be to include non listed firms to compare the findings