4. Operating performance of firms when they go public
4.1. Change in operating performance
Jain and Kini (1994) argue that a private firm that goes public results in the dilution of
the entrepreneur’s ownership interest. The increased conflicts of interest between managers
and shareholders after the IPO should therefore result in higher agency costs. These
costs should cause a decline in operating performance. Their evidence supports this view.
In our study of Thai IPO firms, we might also expect performance declines when firms go
public, but they may be even more dramatic if the information asymmetric environment of
an emerging market exacerbates agency costs.
We examine IPO-firms’ operating performance over time, as well as, compare their
performance to the performance of the industry-median. To report the change in operating
performance over time, we calculate the median difference between the operating
performance of each firm during two time points. Specifically, we report the median
change between the operating performance during the year before the IPO (t=1) to the
IPO year (t=0), and each of the 3 years after the IPO (t=+1, +2, +3). Significance levels are
tested using the Wilcoxon signed rank test. The industry-adjusted performance of an IPO
firm is the difference between its change in operating performance and that of the industry
median. The results are presented in Table 2.