An analysis of the success factors in the post-IPO phase

Abstract

In the ever-evolving landscape of financial economics, the Initial Public Offerings (IPO) stand as pivotal events in the market involving the transformation of privately held companies to publicly traded entities. This procedure is hardly a simple transaction but goes beyond this as it embodies a variety of strategies, growth ambition and market recognition. Beyond the conventional narrative surrounding the reasons behind IPOs and its proceeds, this study ventures into a lesser explored area by analysing the factors leading towards the longterm success of IPOs originating from small EU countries. Success definitions vary across different companies but a common ground uniting companies in their strive towards success is their possession of funds, generated from profits. An ordinal logistic regression is employed to capture the effect of several variables on the likelihood of achieving specific profit levels. The significance of this study lies in its potential to analyse IPOs from a different light. For the shareholders, this study provides an outlook on the determinants of higher profits – a key factor when deciding on whether to go through with the IPO. For the investors, this study provides an overview of factors leading to company success – helping investors to strategically time their investments. For policymakers, a better understanding of the long-term performance of IPOs can be gained, allowing for better policy regulation and ultimately a stable environment. The conclusions drawn in this study demonstrate creditable results, serving as a testament to the model’s reliability and effectiveness. The final model showcases the effects which different variables have on the likelihood of transitioning from one profit category to another. The analysis reveals that higher sales and current ratios contribute to significant increases in the odds of achieving higher profits. However, a greater effect is revealed by predetermined variables such as ‘industry’ and the ‘IPO issue year’. Such findings have not only shown the model’s robustness but also its practical ability in the markets to act as a guide to future IPO activities. As IPOs continue to emerge and increase in popularity, this study serves as a timely resource further adding to the current breadth of literature.