Drought in Equity Initial Public Offers in Kenya: A Demand Perspective

Purpose. Investors sentiments on initial public offers (IPOs) determine effective demand of new equity offerings. When sentiments are negative, demand of IPO shares shrinks and firms often shelf they equity offers than risk a subscription bound to fail. Shelving of offers results to prolonged IPO drought as experienced in Nairobi Security Exchange. The purpose of this paper is to assess investors sentiments on IPO and evaluate how these sentiments contribute to IPO drought in Kenya.Methodology. Retail investors are major participants and thus determinant of success of IPO subscription. The paper collected primary data from active retail traders in stock market using a likert scaled questionnaire with 32 statements focusing on various dimensions of investors sentiments. Data was analyzed through index constructions, logit and factor analysis.Findings. The results indicate investors hold negative sentiments on IPO specifically on quality of issue firms, efficiency of IPO market, risks and returns of IPO investment and based on these sentiments, IPO droughts may prolong further.Implication. Retail investors are currently not enthusiasts of IPO market. Security market promoters and regulators are called upon to review key concerns of investors specifically IPO market efficiency and quality of listing firms among others as well as devise programs to train and educate retail investors on assessing attractiveness of issue firm and investment strategies to adopt in IPO market.