Abstract
As Initial Public Offering (IPO) is a significant milestone in the financial strategy of a firm, this study aims to evaluate performance of IPOs using multiple measures including accounting-based performance (ABP), value-based performance (VBP) and overall performance (OP) in the pre-and post-IPO periods. Therefore, we present two combined approaches based on a compromise MCDM method-VIKOR and objective weighting methods-CRITIC and MW (Mean Weight) to evaluate and rank IPOs to help shareholders with understanding on how their performance changes under the different measures. Since the compromise solution (one or a set) proposed by VIKOR depends substantially on criteria weights, VIKOR-CRITIC can show more realistic results because of the differential weights assigned to criteria by CRITIC. In this study, a case study is conducted in order to evaluate the performance of Turkish IPOs based on ABP, VBP and OP measures using the combined methods. The results show that the compromise solution results obtained by VIKOR-CRITIC may be a guideline for investors in making more profitable investment decisions before leaping into any investment decision.
Highlights
One of the inevitable stage of a firm life cycle is going public that is known to be as Initial Public Offering (IPO) concept since firms can raise their capital by issuing stocks and selling them to the public
The objective of this paper is to evaluate performance of IPOs with accounting-based performance (ABP) measures in both the pre- and post-IPO periods, with value-based performance (VBP) measures in the post-IPO period, and with overall performance (OP) measures, the integration of the ABP and VBP measures, in the post-IPO period to be able to present an opinion for investors in making more profitable investment decisions
An appropriate measure of management and management strategy must consider the value of a company that can be measured in both book-value figures assessing its assets in place and market value-figures assessing the value of its competitive strategy (Bacidore et al 1997). From this point of view, VBP measures that adequately reflect performance are proposed in order to assess the performance of companies such as; economic value added (EVA) by Stewart (1990, 1991), market value added (MVA) by Stewart (1990), cash flow return on investment (CFROI) by Young and O’Byrne (2001), cash value added (CVA) by Boston Consulting Group (2000) and refined economic value added (REVA) by Bacidore et al (1997)
Summary
One of the inevitable stage of a firm life cycle is going public that is known to be as Initial Public Offering (IPO) concept since firms can raise their capital by issuing stocks and selling them to the public. The major financial objective of a firm has been the maximization of its shareholders’ value, which motivates and enables whole management of that firm to make considerably more rational strategic and organizational decisions In such a case, traditional accounting-based performance (ABP) measures (e.g. return on assets (ROA), return on equity (ROE), return on sales (ROS), etc.) have been criticized. Modern value-based measures have been introduced to show how a company has created value for its shareholders/owners in the modern industry time In this context, modern VBP measures may be seen more suitable for measuring performance of firms than traditional ABP. A case study is conducted in order to evaluate the performance of 16 Turkish IPO firms going public in 2011.
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