EFFECT OF LISTING ON THE FIRM VALUE OF QUOTED INSURANCE FIRMS IN THE KENYAN BOURSE

Abstract

In recent times, interest in listing at the securities exchange has assumed high prepositions in Kenya. This situation has probably developed as a result of renewed awareness of the several roles played by the capital market such as; lowering cost of equity hence stimulating investment and growth by spreading the risks of long terms investment. Therefore, the purpose of this study was to analyze the effect of listing on firm value of quoted insurance companies at the Nairobi Securities Exchange. More specifically, the study sought to establish the extent to which listing affects the various firm value variables namely; profitability, liquidity, gearing and investors valuation of the firm. This study utilized three main theories i.e. market timing theory, capital structure irrelevance theory and the pecking order theory. The study adopted a descriptive research design with the target population being all 6 insurance companies listed at the Kenyan Bourse. Secondary Data was collected from the NSE and published financial statements from the companies’ websites. Data collected was analyzed using student t test. The research findings indicate that there is no significant relationship between listing and firm value hence acceptance of null hypotheses. The implication of these findings is that listing does not improve the company’s value. Therefore a fundamental understanding of listing effect on firm value is crucial for decision makers to undertake rational thinking before undertaking listing. This requires an appreciation of the economic conditions that can either initiate or truncate a company’s growth; one that is often complex and unpredictable, but facilitates the life cycle of the firm. This study therefore recommends for similar studies to be carried out in Kenya so as to analyze the impact of listing on firm value over a longer post listing time-span.