The Effect of Initial Public Offering (IPO) on Corporate Financial Performance: A Case Study of the Saudi Stock Exchange (Tadawul)

Abstract

This study discussed the effect of several Initial Public Offering (IPO) characteristics on corporate financial performance for Saudi IPO companies that are listed in Saudi Stock Exchange (Tadawul). Employing a sample of 16 companies that are listed on Tadawul from different sectors and in different time periods, we found that several factors have significant effect on corporate financial performance. More specifically, we found that corporate financial performance (using 7 days stock return) is affected by IPO individuals’ shares subscription, companies’ share of subscription, and number of deals in 7 days.

However, our results show insignificant effects for individuals’ coverage ratio and trading volume in the first 7 days on corporate financial performance.

The study provides important implications for market participants who need to take IPO characteristic into consideration before making their investment decisions. It also provides insight for Saudi regulatory on the importance of shares subscription for IPO market performance. This suggests that regulator may apply best practices for monitor IPO characteristics and improving IPO transparency and governance.