Analysts long-term earnings growth forecasts and stock price performance following equity offering. A survey of Companies listed in Nairobi securities exchange
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Date
2014-07-03
Authors
Muema, Misheck Mutombi
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Abstract
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.
Description
Department of Accounting and Finance, 55p. 2012, HG 4551 .M8