Post-issue operating performance of firms in Nepal

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Type of the article: Research Article

Abstract
This paper aims to examine the operating performance of firms after new issues. Using financial data of 43 initial public offering (IPO) firms from 2013/14 through 2022/23 with 215 observations, operating performance is evaluated. Both the independent samples t-test and the Wilcoxon signed-rank test were used to compare firms’ operating performance between pre- and post-issue periods. Results reveal that operating performance after IPO for all indicators in different time windows from Year t+0 to t+3, has been negative compared to Year t–1. Sector-specific analysis shows that the decline in operating performance is significantly higher in the microfinance sector compared to hydropower firms. Underpricing has a positive effect on operating performance except in a few cases. Hot issue dummy has a negative, insignificant effect on both measures of operating performance, viz., operating return on assets and operating cashflow to total assets, for the first two-time windows, and it weakly supports the windows of opportunity hypothesis. On the other hand, the influence of promoter ownership on operating performance was positive except in few cases, which is contrary to the agency theory. Further, the results show that operating performance has a weaker influence on long-run IPO returns. Thus, it is proposed that IPO firms should strive to intensify their activities and effectively utilize capital raised through IPOs, considering the net present value of the projects to achieve better firm performance.

Acknowledgments
This paper is prepared based on my ongoing PhD work. So, I would thank my supervisors, Professor Dr. Keshar J. Baral and Professor Dr. Dilli Raj Sharma, for their mentoring during my PhD. I also extend a deep gratitude to the University Grants Commission Nepal for providing me PhD Fellowship with the Award No. PhD-78/79-Mgmt-02. I never forget my friend Ramkrishna Chapagain, a research scholar at Delhi School of Economics, University of Delhi, for assisting me with several inaccessible resources for this study.

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    • Table 1. Summary statistics of sample IPO firms
    • Table 2. Operating performance variables and measures
    • Table 3. Parametric and non-parametric tests of operating performance measures after the completion of IPO
    • Table 4. Parametric and non-parametric tests of operating performance measures after the completion of IPO for the microfinance and hydropower sectors
    • Table 5. Multivariate regressions of post-issue operating performance of firms
    • Table 6. Estimated relationship from cross-sectional regression of long-run IPO returns on post-issue operating performance indicators
    • Conceptualization
      Jas Bahadur Gurung
    • Data curation
      Jas Bahadur Gurung, Dilli Raj Sharma
    • Formal Analysis
      Jas Bahadur Gurung
    • Funding acquisition
      Jas Bahadur Gurung, Dilli Raj Sharma
    • Investigation
      Jas Bahadur Gurung, Dilli Raj Sharma
    • Methodology
      Jas Bahadur Gurung, Dilli Raj Sharma
    • Project administration
      Jas Bahadur Gurung
    • Software
      Jas Bahadur Gurung
    • Validation
      Jas Bahadur Gurung, Dilli Raj Sharma
    • Visualization
      Jas Bahadur Gurung
    • Writing – original draft
      Jas Bahadur Gurung
    • Writing – review & editing
      Jas Bahadur Gurung, Dilli Raj Sharma
    • Resources
      Dilli Raj Sharma
    • Supervision
      Dilli Raj Sharma