The impact of IPO listing on Company Financial Performance: Evidence from Saudi Arabia

Abstract

This study critically examines the impact of Initial Public Offerings (IPOs) in the transformation of private companies into public entities within Saudi Arabia's dynamic economic framework. IPO listing is a way to gain more capital for developing private companies to meet capital requirements for growth. Saudi Arabia has an increasing trend of IPOs as part of Vision 2030, however, there is not conclusive evidence about the impact of IPOs on financial performance of newly listed companies. By employing data from 49 non- financial companies that went public during 2017-2021, this study tries to revisit the impact of IPO using Panel OLS based on the Hausman test. The study finds that IPO positively impacts Total Assets (TA) and Profit Margin (PM) of the companies while negatively impacts Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) , Return on Assets (ROA), Asset turnover (ATO) and Return on Equity (ROE). These findings are true for non-financial companies. This study may be helpful in guiding the investors before taking any decision to buy stocks in primary stock market based on their investment strategies and outcomes. The positive impact on Total Assets may be a reason to lower ROA, ROE and EBITDA. The findings also indicate that companies first focus on assets building and then move to ear profits. The same study may be employed in financial sector or other sectors of the stock exchanges