The effect of lockup expiration on the stock prices of companies listed on the Nairobi securities exchange

Abstract

This Research Project examined the effect of lockup expiration on the stock prices of companies listed on the Nairobi Securities Exchange. The population of this study consisted of all sixty four companies listed on the Nairobi Securities Exchange. The study used purposive sampling method where companies that were listed on the NSE after 2002 when the Capital Markets Public Offer Listing and Disclosure Regulations of May 2002 which makes lockup contracts for a period of two years mandatory for IPO companies listed on the NSE came into effect. A total of five firms which cuts across five industries: The banking Industry, Insurance Industry, Energy Industry, Commercial and Services Industry and Technology and Telecommunications Industry, out of the sixty four listed companies were used as a sample. The study period was from 2008 to 2013. The secondary data for the five variables used was obtained from NSE information data base for the period 2008 to 2013 This Study used event study methodology to establish the relationship between lockup expiration and stock prices of IPO companies listed on the Nairobi Securities Exchange. The study sought to establish the abnormal return around the lockup expiration, additionally, the study investigated the statistically significant factors affecting the cumulative abnormal returns surrounding the lockup expiry period consisting of log of firm size, Firm age and ownership concentration. The results show statistically significant negative abnormal returns at lockup expiration. The general results therefore indicate a negative relationship between lockup expiration and stock prices of companies listed on the Nairobi Securities Exchange. In terms of the results of the three independent variables: Log of firm size, firm age and ownership concentration used to investigate the statistically significant factors affecting the cumulative abnormal returns the study found that these independent variables have statistically insignificant effect on the cumulative abnormal returns for the sample considered in this study.