The Post-Issue Operating Performance of Ipo Firms

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The Post-Issue Operating Performance of IPO Firms
Overview of the article As there were still few attempts to measure operating performance of IPO firms at that time, Jain and Kini (1994) wrote this article in a bid to focus on this particular issue by study on the IPO firms during 1976-1988. They investigate the change in operating performance of firms after going public through IPOs which they find that IPO firms show a decline in post-issue operating performance. The main reasons that explain the decline in the post-issue operating performance of IPO firms are the existence of information asymmetry and/or a conflict of interest between the existing entrepreneurs and the new shareholders. The authors separate the reasons into 3 points: (1) the agency cost increases when a private firm transfers to public and the reduction in ownership stake consequently leads to the agency problem, (2) the window-dressing made by managers causes overstate pre-IPO performance and understate post-IPO performance, (3) the timing that issue stock in periods of unusually good performance levels while they know that the good performance is not sustainable. This article is divided into four parts; Part 1 presents the sources of collected information on IPO firms and the criteria used for selecting them. So, their finally sample consists of 682 firms. The authors also stated that all significant tests are based on the two-tailed Wilcoxon signed rank tests, assuming that the observations are independent. They concerned about the skewness of the data from operating performance. So, they used the median as a measure of central tendency throughout the literature. Part 2 demonstrates evidences on post-issue operating performance changes. They measured it by using two proxies: (1.) the operating return on assets, (2.) the operating cash flows deflated by assets. These measures were…...

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