Factors Influencing Stock Prices For Firms Listed At Nairobi Securities Exchange After Initial Public Offerings In Kenya

Abstract

Initial Public Offerings (IPO’s) have recently become popular as way of sourcing for funds by organizations and to the investors by buying shares in those companies. However, IPO can be a risky investment avenue because of uncertainty regarding the future prices of the shares. For the individual investor, it is difficult to predict how the stock or shares performed on its initial day of trading and in the near future since there is often little historical data with which to analyze the company and into which to base or guide the investor while making investment decisions. The study targeted 9 companies that had IPO during the period 2006 to 2015. The main objective of the study was to determine the factors influencing stock market prices of companies listed at NSE after IPO’s in Kenya. The study was guided by the following specific objectives: to determine the effect of Earning per Share on stock market prices of companies listed at NSE after IPO’s in Kenya; to establish the effect of Dividend Policy on stock market prices of companies listed at NSE after IPO’s in Kenya; to ascertain the effect of Liquidity of the firm on stock market prices of companies listed at NSE after IPO’s in Kenya; to ascertain the effect of Size of a firm on stock market prices of companies listed at NSE after IPO’s in Kenya. A correlation research design was undertaken in the study and secondary data collected from annual statements of the nine companies for the period of study. The study established that in view of significance at 0.05, the study documents that the main significant predictors of share prices after IPO for listed firms are DPS (p=0.022) and EPS (p=0.000) which are all less than 0.05. Also the Liquidity and the firm size have a positive relationship with the firms’ share price. The study concludes and recommends that upon listing of the firms on the NSE, should evaluate their dividend policy. The firms listed on NSE should enhance their EPS by investing in viable projects that increase the earnings. Listed firms on the NSE should regularly pay dividends to their shareholders on the income generated from investment projects.