Microeconomic Firm Characteristics and Long Run Returns: The Case of Firms That Issued Equity at Nairobi Securities Exchange Martin Khoya Odipo, Tobias Olweny and Oluoch Oluoch Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya Email: odipomk@yahoo.com Abstract. This study looks at micro-economic determinants of long run performance of shares issued in Nairobi Securities Exchange from 1st Jan. 2007 to 31st Dec.2013. Do these selected microeconomic determinants have statistically significant effects on long run return on equity issued in the Nairobi security exchange in Kenya? The study has a total 12 firms that issued shares in the security exchange during this period. In order to achieve the objectives of the study “a calendar study” approach on the issued shares was adopted. Monthly average returns were calculated for a period of 5 years. Nine hypotheses were deduced and executed. Three were based on benchmarks namely: Nairobi Securities Exchange Index (NSEI), Capital Asset Pricing Model (CAPM) and Matching Firms (MF). Along with the 3 mentioned measurement models, other 6 micro-economic variables were incorporated in the study; firm size, offer size, stock turnover, book/ market ratio, age and quality of underwriter. A panel data multi-regression and single regression analysis were run to examine the relationship between average return and micro-economic determinants on firm performance in the long run. The results of the study showed that the study corresponds with some of results of the previous studies with regard to the long run returns of either under or over performance. The level of under of over performance based on the benchmarks used were that NSEI and Matching firms performed better than firms that issued equity. However firms that issued equity performed better than CAPM as bench mark. The study also revealed that two explanatory variables; Age and Quality of underwriter were statistically significant as determinants of long run performance. Finally two independent variables were found to have positive influence on firms that issued equity in the NSE. In conclusion this study confirmed the results of previous studies done either supporting certain variables as determinants of long run return or do not support certain variables as determinants of long run return. Keywords: public offerings, long run return, firm characteristics, initial public offering, seasoned equity offering, share issue privatization. 1 Introduction Long run return on equity issued by firms has remained a controversial topic in finance. In finance literature, the empirical studies have shown that those firms that issue equity perform poorly in the long run. This feature can discourage listed firms from seeking equity financing and instead seek bank lending. However following the financial crises of 2008 this argument has been put question. The financial crisis of 2008 led capital financing by banks to reduce loan financed growth (Aiyar, Calomiris & Wieladek, 2014; Giovannini, Mayer, Micossi, Noia, Onado, Pagano &Polo, 2015). Therefore equity financing requires a second look in as far as long run return is concerned. The study focuses on micro-economic factors as firm characteristics to unveil the empirical paradox on shares issued as IPO, SEO and SIP and their long run return. This study considers firm characteristics which include firm size, firm age, firm share turnover, offer size, book/market ratio, and quality of underwriter in each of these firms. The study poses the following questions: How would these firms perform in comparison to the three benchmarks; securities market index (NSEI), matching firms (MF) and Capital asset pricing model (CAPM)? Which of these microeconomic variables have statistically significant influence on the long run return on firms that issue equity in the Nairobi Securities Exchange (NSE) market? Would the assessment of benchmark return for equity issue be important in the determination of long run return? https://dx.doi.org/10.22606/jaef.2020.54002 Journal of Advances in Economics and Finance, Vol. 5, No. 4, November 2020 53 Copyright © 2020 Isaac Scientific Publishing JAEF