Financial performance of Initial Public Offerings: Exploratory study

Abstract

The subject of prowess and relevance constantly represents an apprehension of the leaders which alerts the presence of the firm in its market notwithstanding their definitions and complicated measures emanating from the determination of the performance. The latter, as being a kaleidoscopic and multidimensional construct, can never illustrate a consensus of the authors.

Apart from its measurement which cannot be based on a single indicator, the performance in the organizational world is impacted by a set of strategic decisions undertaken by the leaders of any firm, including the use of the stock market for various reasons and specific motivations including: funding ; the reinforcement of notoriety and the power of negotiation; portfolio diversification, etc. As well as the decision to go public is an event that requires some prior arrangements in terms of performance to show up to investors, to be able to win the race and go public successfully. In this case, a change in the level of performance is observed throughout the process: before and after the IPO.

The present study allows us to constitute a frame of reference to prepare the ground of an investigation concerning financial performance before and after Initial Public Offerings (IPOs) in companies listed on the Casablanca Stock Exchange in Morocco. The object of this paper is to offer a literature review that highlights the explanatory factors of an IPO decision and its impact on financial performance. Notably through theoretical foundations which underlie the decision to go public and its effect on performance, namely: the theory of the agency and the timing of the market theory (founded on the assumption of earnings management). As well, based on international empirical studies that demonstrated the behavior of listed companies (regardless of their structure or their line of business) in terms of performance in a period pre and post-listing. By using different aggregates and performance indicators, the studies’ findings proved out the phenomenon of higher financial performance that improves faster than normal during the year before, but diminishes after the going public event in the long run. This article brings a more holistic and integrated view of the relationship between IPO and performance, as well as avenues for future research are offered in the conclusion.

JEL Classification : G32

Paper type: Theoretical Research