Isaac Scientific Publishing

Journal of Advances in Economics and Finance

Microeconomic Firm Characteristics and Long Run Returns: The Case of Firms That Issued Equity at Nairobi Securities Exchange

Download PDF (318.9 KB) PP. 53 - 65 Pub. Date: November 30, 2020

DOI: 10.22606/jaef.2020.54002


  • Martin Khoya Odipo*
    Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
  • Tobias Olweny
    Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
  • Oluoch Oluoch
    Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya


This study looks at micro-economic determinants of long run performance of shares issued in Nairobi Securities Exchange from 1st Jan. 2007 to 31st Dec.2013. Do these selected microeconomic determinants have statistically significant effects on long run return on equity issued in the Nairobi security exchange in Kenya? The study has a total 12 firms that issued shares in the security exchange during this period. In order to achieve the objectives of the study “a calendar study” approach on the issued shares was adopted. Monthly average returns were calculated for a period of 5 years. Nine hypotheses were deduced and executed. Three were based on benchmarks namely: Nairobi Securities Exchange Index (NSEI), Capital Asset Pricing Model (CAPM) and Matching Firms (MF). Along with the 3 mentioned measurement models, other 6 micro-economic variables were incorporated in the study; firm size, offer size, stock turnover, book/ market ratio, age and quality of underwriter. A panel data multi-regression and single regression analysis were run to examine the relationship between average return and micro-economic determinants on firm performance in the long run. The results of the study showed that the study corresponds with some of results of the previous studies with regard to the long run returns of either under or over performance. The level of under of over performance based on the benchmarks used were that NSEI and Matching firms performed better than firms that issued equity. However firms that issued equity performed better than CAPM as bench mark. The study also revealed that two explanatory variables; Age and Quality of underwriter were statistically significant as determinants of long run performance. Finally two independent variables were found to have positive influence on firms that issued equity in the NSE. In conclusion this study confirmed the results of previous studies done either supporting certain variables as determinants of long run return or do not support certain variables as determinants of long run return.


public offerings, long run return, firm characteristics, initial public offering, seasoned equity offering, share issue privatization.


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