European integration will have a real influence on the shape of the financial market in Poland and in other former socialistic countries which undergone the transformation. To stop the tendency of weakening of Polish stock exchange it is important to recognize mechanisms influencing the decisions of companies about the public sale of shares. Decision of companies about the entry on the stock exchange is driven with the expectation that it will help them in the realization of the particular goals. There are many primary reasons for issuing shares, among other to gain the capital on investments, to acquire prestige, to increase sale etc. In Poland till now the entry on the stock exchange of some companies was a method of the privatization, however this process extinguishes. Going public companies will be owned by private businessmen. Hence, very important is to recognize the original mechanisms of initial public offering (IPO). The analysis of IPO effects, enforced with the use of panel models points, that thanks to funds from going public the company realize investment projects and use resources in compliance with declared destination, i.e. on investments, and not on the debts repayment. Public companies do not change their previous capital structure, the debts after the entry on the stock exchange grow to the level from before IPO. Listing on the stock exchange raises the size of the company, but lowers the rate of its growth and decreases the profitability. Findings from research confirm hypotheses that companies go public from the opportunistic motives and then by the way they realize investment programmes.
Table of Contents
Introduction
1. Hypotheses concerning the IPO effects
1.1 Growth of firm
1.2 Decrease in leverage
1.3 Fall in profitability
1.4 Growth of investment
1.5 Company performance and the change in the structure of the property
2. Construction and estimation of model
2.1 Estimation method
2.2 One-way and two-way model
2.3 Autocorrelation
2.4 Heteroscedasticity
2.5 PCSE model
2.6 Description of panel data
2.7 Selection of variables and estimation of model
3. Verification of investigated hypotheses
3.1 Verification of hypothesis about growth of firm
3.2 Verification of hypothesis about fall in leverage
3.3 Verification of hypothesis about fall in profitability
3.4 Verification of hypothesis about growth of investment
4. Conclusions
Objectives and Topics
This study investigates the impact of Initial Public Offerings (IPO) on the operational results and financial structures of Polish companies during the three-year period following their market debut. The research aims to empirically verify various hypotheses concerning corporate growth, financial leverage, profitability shifts, and investment behavior using panel data models.
- Analysis of IPO motives and their impact on corporate performance.
- Econometric verification of investment growth and leverage changes post-IPO.
- Evaluation of profitability trends in the context of market entry.
- Comparison of young vs. developed companies regarding financial needs.
- Assessment of the Warsaw Stock Exchange's role in the national economy.
Excerpt from the Book
1.1 Growth of firm
One of the most expected effects of the entry of the company on the stock exchange is growth of the firm. In research by Pagano, Panetta & Zingales (1998) this effect proved to be statistically insignificant. They confirmed however the hypothesis about the high growth rate in period before the public sale of the company. The improvement in performance, expected by firms, can result from the two facts. First, in absence of interest rate payments and maintenance of credits firms posses the greater amount of available funds, what in consequence makes possible growth of the firm through the enlargement of assets. Growth of assets in the moment of going public is apparent, but value and the growth rate in following years after IPO cannot be determined and priori. One ought to wait that before a public sale of the company the growth rate of assets will be higher than after the sale of the company, because of the relative lower maturity of the company and the wish of attracting of investors. Moreover, current investments and the modernization of the company do not help to increase the growth rate. Second, being the public company enlarges credibility of the company in contacts with customers, trade partners and other co-operates of the company. This results from the fact, that the company is under a supervision of Polish Securities and Exchange Commission and has to satisfy rigorous requirements to be allowed to the public trading. Information on the listed companies are universally accessible, what diminishes the information asymmetry and the risk of the cooperation with the firm.
Summary of Chapters
Introduction: Provides a contextual overview of the importance of IPOs within financial markets and outlines the study's goal to assess the advantages gained by Polish firms during the IPO process.
1. Hypotheses concerning the IPO effects: Introduces several theoretical hypotheses regarding firm growth, leverage, profitability, and investment behavior post-IPO.
2. Construction and estimation of model: Describes the panel data methodology, including the use of PCSE models to address autocorrelation and heteroscedasticity within the dataset.
3. Verification of investigated hypotheses: Presents the empirical findings and results of the panel model estimations for each hypothesized effect of going public.
4. Conclusions: Synthesizes the research findings, confirming that while IPOs increase investment, they often lead to decreased profitability and do not significantly alter capital structures.
Keywords
IPO, panel data, emerging markets, financial market, investments, Warsaw Stock Exchange, Polish companies, firm performance, leverage, profitability, capital structure, econometric modeling, market transformation, corporate growth, stock exchange development.
Frequently Asked Questions
What is the primary focus of this research?
The work focuses on analyzing the economic effects of Initial Public Offerings (IPO) on Polish companies, specifically examining how going public influences firm performance, growth, and financial health in the first three years after the debut.
Which central thematic fields are covered?
The study covers corporate financial analysis, the impact of market listing on investment levels, changes in debt structure (leverage), and the decline in profitability metrics post-IPO.
What is the primary research goal?
The primary goal is to empirically test if the expectations of companies—such as gaining capital for investments—are realized after an IPO, or if companies enter the market driven by opportunistic motives.
Which scientific method is applied?
The research utilizes econometric techniques, specifically panel data models estimated via the Prais-Winsten method with Panel Corrected Standard Errors (PCSE).
What topics are discussed in the main section?
The main section evaluates hypotheses related to firm growth, the reduction of debt, the fall in profitability, and the increase in capital investment post-IPO, supported by statistical analysis of data from 1992-2001.
Which keywords define the study?
Key terms include IPO, panel data, emerging markets, financial market, investments, and Warsaw Stock Exchange.
Why do young companies perform differently after an IPO compared to developed ones?
Young companies have larger financial needs and higher growth expectations, which leads to more significant adjustments in their financial indicators and profitability levels following an IPO compared to more established firms.
How does the entry on the stock exchange affect the capital structure of these companies?
The findings indicate that companies do not fundamentally change their capital structure; often, debt levels return to pre-IPO levels within a few years, suggesting that emissions are used for investments rather than debt repayment.
- Quote paper
- Katarzyna Kopczewska (Author), 2003, The Analysis of Effects of Initial Public Offering on the Warsaw Stock Exchange, Munich, GRIN Verlag, https://www.grin.com/document/52847
