The Ex Post Operating Performance of IPO Firms

Abstract: The initial public offering (IPO) has historically remained a significant method for corporate capital funding and diversification of the equity base. This thesis examines the short to long-term effect on operating performance of companies as they make the transition from private to public ownership. Specifically, we investigate how the performance development varies with the initial equity retention of the owner-managers, as well as the relation between operating performance and the level of underpricing. Finally, we analyze the national economic crisis effect on operating performance of IPO-firms. The empirical sample comprises 111 IPOs of the main lists of the Stockholm Stock Exchange from 1997 to 2008. We find that the post-issue operating performance of IPO-firms decline substantially in all performance measures except sales. Moreover, we observe that managerial ownership retention has a positive effect on sales but a negative relationship with other measures of operating performance and that the initial return of the stock affects short-term performance of the firm positively. Additionally, IPO firms exceed other firms in terms of sales growth during a period of crisis, but fare worse considering remaining measures of operating performance.