EFFECT OF ECONOMY PRICING STRATEGY ON THE PROFITABILITY OF INSURANCE FIRMS IN KENYA.

Abstract

Purpose: The objectives of the study were to analyze effect of an IPO on the financial performance of listed companies in the Nairobi securities exchangeMethodology:The study will adopt an events study. The target of this study is companies that have issued IPOs and are listed in the Nairobi Securities Exchange.The sample will consist of companies that issued IPOs between 1996 and 2011.Our sample size is 13 listed companies in the NSE (Appendix II).The study will make use of secondary data.Market model will be used in coming up with Expected/Normal Return (R), Abnormal Return (AR), the Cumulative Abnormal Return (CAR) and then lastly, test for the significance of the study.Results:It was also possible to conclude that there was a positive but insignificant relationship between mean market return and PBT.It was psosoble to conlude that the mean abnormal retruns after the IPO were higher than before IPOIt was possible to conclude that going public allows the firm to enhance its bargaining power with bankers and financial creditors, and consequently reduces the firm’s cost of credit. It is also possible to conclude that selling shares to the public enhances a firm’s financial flexibility by generating additional sources of capital to finance growth and expansion and these is reflected by the high share prices. The study also concludes that increase in investor recognition and shareholder base due to an IPO lowers the firm’s cost of equity; enhances stock liquidity which is valuable for managerial incentive schemes, which inturn turn increases firm value. .Policy recommendation: The study recommends that the current efforts of listing small firms/SMEs should be fast tracked so as to facilitate the listing of small firms. It was recommended that the listed companies to go public as this enhances a firm’s financial flexibility by generating additional sources of capital to finance growth and expansion. This is reflected in their share prices.The study recommends that each county should have security exchange so that the private firms in the county can be listed. It was recommended that CMA should encourage firms to list as doing so would increases investor recognition and shareholder base which would lowers the firm’s cost of equity and improves frims value