Financial Economics

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Underpricing of Initial Public Offerings on African Stock Markets: Ghana and Nigeria
(AERC, 2012-07) Osei, Kofi A.; Adjasi, Charles K.D.; Fiawoyife, Eme U.
The paper provides empirical analyses of the initial and after-market short-run and long-run IPO returns on the Ghanaian and Nigerian stock markets over the period 1990 to 2006. The results show that the Ghanaian IPOs, on average, are underpriced on the initial trading day by 6.7% (market unadjusted) and 6.2% (market adjusted). In the case of Nigeria, the average underpricing is much higher at 43.3% and 43.1% for market unadjusted and market adjusted abnormal returns, respectively. There is evidence of three-year long-run underperformance as shown in the low mean buy and hold average return (BHAR) of 1.5% for the IPOs in Ghana and 0.6% for IPOs in Nigeria. Results from our regression model explaining initial abnormal returns for the IPOs of Nigeria show that size of firm and audit quality are important variables affecting underpricing. The results also show the presence of a non-linear relationship between the offer price and underpricing.