Determinants of Profitable Opportunities for Retail Investors after an Initial Public Offer in Kenya

Abstract

The purpose of this research was to investigate the determinants of profitable opportunities for retail investors after initial public offer in Kenya. The presence of profitable opportunities for retail investors can help them make better investment decisions in the stock market. Specifically the study investigated whether the industrial performance in Kenya determines profitable opportunities for retail investors after IPOs, establish whether company’s corporate governance in Kenya influences profitable opportunities for retail investors after IPOs, determine the effect of economic performance in Kenya on profitable opportunities for retail investors after IPOs, find out whether the technology in Kenya determines profitable opportunities for retail investors after IPOs and to evaluate whether the availability of economic resources in Kenya determines profitable opportunities for retail investors after IPOs. The study sought from previous research on returns on Initial Public Offerings (IPOs) on retail investors whether they have documented abnormal returns and made the assumption that if an abnormal return exists, there are profitable opportunities for retail investors. To assess the determinants of profitable opportunities for retail investors after the IPO’s the study adopted descriptive survey design. The target population of the study was all retail investors from 21 listed firms in the Nairobi Security Exchange. A sample of 384 respondents was selected using simple random sampling in each firm. This study used both primary and secondary data. Data collection instrument used was questionnaires. Data was analyzed quantitatively and qualitatively and results presented descriptively and illustrated by use of tables and charts. Information was sorted, coded and input into the statistical package for social sciences (SPSS) for production of graphs, tables, descriptive statistics and inferential statistics. The study findings indicated that there were increased profitable opportunities for retail investors due to Initial public offers. The study findings further indicated that industrial performance, corporate governance, industrial performance, technology and economic resources were statistically significant in explaining profitable opportunities for retail investors. The study concludes that firm size had a significant impact on IPO pricing and larger firms are easier to value because of ease of forecasting cash flows. The study concludes that the listed brokerage firms had an effective and independent board committee, the firms had in place monitoring committees (audit, nomination, and compensation committees), which lead to better organization performance and firms gain legitimacy through prestigious board of directors. The study recommends that the firms should look into the several factors before announcing of IPOs this is because the size of the IPO firm has important implication for pricing as it is an important determinant of stability of the firm. The study recommends that the firms should be more market oriented so as to ensure that the market information obtained from customers and the competitors helps the firm to keep an eye on the market. The study further recommends that the management should allocate adequate resources to all departments in the firm.