The Initial Public Offerings and Market Trading at the Nairobi Securities Exchange, Kenya

Abstract

Initial public offerings play a key role in enhancing capital formation, visibility, and investor opportunity through rational pricing and trading. However, the reality at the Nairobi Securities Exchange (NSE) often diverges due to market inefficiencies, speculation, and limited transparency. IPOs frequently lead to short-term volatility and inconsistent post-listing financial performance. Despite research on IPO pricing and firm-specific factors, there remains a critical gap in understanding the interconnected effects of IPOs on stock volatility, firm performance, and investor behavior within Kenya’s unique market context. This fragmented knowledge hinders strategic decision-making by firms, misguides investors, and challenges regulators aiming to enhance market stability and promote sustainable economic growth. The study was anchored on signaling theory and efficient market hypothesis and adopted a systematic review of literature. The study found that Initial Public Offerings (IPOs) significantly impact short-term market volatility, driven by speculation and information asymmetry, though volatility tends to stabilize over time. While IPOs provide capital access, their effect on financial performance is mixed, not guaranteeing universal improvements in profitability or efficiency. Furthermore, IPOs strongly influence investor decisions, often fueled by speculative interest and perceived short-term gains, challenging rational analysis due to limited data. The study recommends intensifying investor education, promoting transparency in IPO processes and company communications, and strengthening regulatory oversight to foster market stability and confidence.

Keywords: Initial Public Offerings, Market Trading, Volatility, Investor Decisions