Nexus between Firm Ownership, Board Composition and Initial Public Offering Stocks Performance at the Nairobi Securities Exchange in Kenya

Abstract

Extant literature has globally demonstrated two anomalies of initial public offering stocks performance: positive initial returns and long run underperformance. Kenya’s IPO market is experiencing a downward trend. The last issue was in 2015. Bond market has gained traction compared to equity market. Studies have associated firm specific factors to IPO stocks performance and ignored the moderating variable of automation. The study analysed the relationship between firm ownership, board composition and IPO stocks performance at NSE. The percentage of shares owned by the Kenyan government was used to measure firm ownership and board composition was measured by percentage of executive board members to total board members. The performance of IPO stocks was measured using both Cumulative Abnormal Returns and Buy and Hold Abnormal Returns. Automation was measured by IPO stocks performance between pre and post automation period. The sample size was 15 firms which floated shares between 1994 and 2019 with 2,586 observations. Secondary source was used to collect data. Longitudinal and descriptive study designs were used together with multiple linear regression to analyse the data. To determine between fixed and random effects, the study used Hausman test. It was established that both firm ownership and board compositions correlated negatively with IPO stocks performance. Automation on the other hand was positively correlated with board composition but did not correlate with firm ownership. This study will assist the Kenyan government in developing financial stability measures and investors in making informed decisions.