Performance of Companies Listed on the Uganda Securities Exchange

Abstract

The purpose of this study was to investigate listing/IPO deficiency on the USE by establishing whether or not there’s a mismatch between pre-IPO and post-IPO financial performance expectations. The specific objectives of the study were to investigate the motivations for IPO issuance, establish and compare the pre-and post-IPO financial performance of listed companies. The researcher combined non-experimental and descriptive research designs with a triangulation research approach. The study population consisted of the 9 local companies listed on the USE from which a smaller sample of 5 companies was randomly selected. The researcher solely relied on secondary data obtained from the respective companies’ pre-IPO prospectuses, annual reports and financial statements. Financial performance analysis was carried out using a combination of profitability, leverage and liquidity ratios. This culminated into a total of 3 financial ratios to wit ROCE, D/E and CR. The study period for the financial performance analysis was 10 years constituting, 5 years preceding IPO issuance and 5 years immediately following successful admission to the USE official list. This resulted into a total of 50 observations for each ratio and an overall sum of 150 observations for all 3 financial ratios. The results showed that 100% of the companies included in the study cited employee motivation and freeing up shareholder capital as motivations to go public. The need to promote Uganda’s capital market and enhance liquidity were cited by 80% of the sample companies. Finally, 60% cited the need to finance growth, enhance publicity and the peculiar need to comply with the PUSRP. On the part of pre-and post-IPO financial performance, it was discovered that whether or not pre-IPO financial performance was better than post-IPO financial performance depended on the measure of financial performance employed. The results also revealed that listed companies’ experiences varied. According to the findings, 4 out of the 5 companies in the study sample revamped their ROCEs by 11.5%, 6.6%, 10.8% and 3.9%; 3 out of 5 improved their D/Es by 713.3%, 208.9% and 302.4%; and lastly 4 out of 5 diminished their CRs by 24.3%, 44.9%, 93.6% and 14.4% after IPO. From the foregoing, it could be inferred that post-IPO financial performance in terms of ROCE and D/E ratios is better than pre-IPO performance. While on the other hand, pre-IPO financial performance supersedes post-IPO performance when CR is considered. The researcher recommends that the USE gears more effort towards promoting organic growth of the stock market and voluntary listing. Key words: Stock market, going public, listing, IPO, financial performance, USE.