Analysts long-term earnings growth forecasts and stock price performance following equity offering. A survey of Companies listed in Nairobi securities exchange
Muema, Misheck Mutombi
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The study evaluated the role of sell-side analysts' long-term earnings growth forecasts in the Pricing of common equity offering. A survey was carried out in the Nairobi Stock Exchange Market (NSE) of newly listed firms which are characterized by stock price under- performance to establish the relationship between analysts LTG forecasts and the stock price underperformance shortly after Equity offering. The study investigated whether sell-side analysts produce overly optimistic forecasts at the time of equity offering and whether those optimistic expectations are reflected in the stock Prices. The researcher reviewed researchrelated to the role of sell-side financial analyst's longterm earnings growth forecasts in the pricing of common Equity offering. Two important papers published in the 1990s provided perspective on the literature in this area, one of the papers appearing in the Journal of Finance and the other appearing in the financial analyst journal. The main objective was to provide an organized look of the literature, with particular attention to the important research questions. The study employed a descriptive research design. A survey of the newly listed firms in the Nairobi Stock Exchange market was conducted, where census method was used to draw the target population of newly listed companies. The researcher used secondary data obtained from the NSE and CMA data bank, analysts report and library search. Tables and charts where used in data recordings and presentation for easy understanding and analysis. Finally descriptive statistic's where by non linear least squares regression was used in data analysis. From the findings the study revealed that analyst's affiliation had positive effects on their long term earning growth forecasts reports, it was found that sell side analyst long term earning growth forecasts are overly optimistic around equity offering and that analysts employed by the lead managers/investment banks of the offerings make the most optimistic forecast. The results revealed that analyst's bias (optimism) was reflected in the stock prices of firms issuing equity, and-fin lly the researcher found a positive relationship between the fees paid to the affiliated analysts' employers and the level of analysts' affiliation.