Secrecy in Pricing of Initial Public Offering. An Empirical Review of Nairobi Securities Exchange

Abstract

Extant literature allude that IPOs are have positive return in the short run, but long run performance is depressed. Consequently, IPO shares are sold at discount in the primary market. Furthermore, literature reveal that the book building and the fixed methods of establishing the offer price are imprecise. In spite of the weaknesses in the determination of the offer price, price earnings ratio is applied, together with earning per share, .as an estimator of the offer price. The empirical review of the Kenyan case reveals that earnings per share has a positive relationship with offer price, though it was statistically insignificant. The study conclude that earnings per share has no predictive power to estimate the offer price.