Abstract
This study attempts to investigate the change in the operating performance of firms as they go from private to public ownership. Using the data of all the non-financial firms, which floated initial public offerings (IPOs) from 2008 to 2015, this study finds that there is a significant decline in operating performance as measured by ROA, asset turnover, ROS, and OCFTA after the IPO and the decline continues for next two to three years with the highest deterioration of operating performance being observed in the immediate next year of IPO. Moreover, when the study uses age, debt ratio, sales, capital expenditure, and IPO event to explain the variation of the operating performance of IPO firms over time, it finds that IPO event negatively affects all measures of operating performance. Finally, the study finds that deterioration of the post-IPO operating performance is more pronounced for firms offering their securities with premium than firms offering securities without premium. 
 JEL Classification Codes: G11, G12, G32.
Highlights
There is an extensive body of literature documenting that operating performance of firms after they transition from private to public deteriorated (Jain & Kini, 1994; Mikkelson et al, 1997; Kim et al, 2004; Mikkelson, Partch, & Shah, 1997; Cai & Wei, 1997; Kitsabunnarat & Nofsinger, 2004; Bruton et al, 2010)
When the study uses age, debt ratio, sales, capital expenditure, and initial public offerings (IPOs) event to explain the variation of the operating performance of IPO firms over time, it finds that IPO event negatively affects all measures of operating performance
Another reason might be that their performance in the pre-IPO periods was not sustainable and experienced a broader fall in the later years of IPO year or firms offering securities with premium inflated their pre-IPO earnings more aggressively, resulting in subsequent fall in post-IPO performances faster than the operating performance of firms offering securities without premium
Summary
There is an extensive body of literature documenting that operating performance of firms after they transition from private to public deteriorated (Jain & Kini, 1994; Mikkelson et al, 1997; Kim et al, 2004; Mikkelson, Partch, & Shah, 1997; Cai & Wei, 1997; Kitsabunnarat & Nofsinger, 2004; Bruton et al, 2010). Mikkelson, Partch, and Shah (1997) studied a sample of 283 initial public offerings of US companies from 1980 to 1983 They found that the operating performance of IPO firms declines during the post-issue period. Unlike Jain and Kini (1994) they reported that deterioration of operating performance was not caused by reduced managerial ownership with the IPO years rather they suggested that the underperformed firms experienced a lack of window of opportunity after going public Their dependent variables were long-run stock performance and the independent variables were size, ownership share of owner-manager, growth of size. Wang (2005) conducted the same analysis on a sample of 747 firms in China for the period from 1994 to1999 They found that there was a sharp decline in post-issue operating performance of IPOs, as measured by return on assets, operating income to assets, and sales to assets. Taylor, and Walter (2004) found that the mean age of the IPO firms in Australia is 5 years and Wang (2005) reported that the mean operational history of IPO firms in Thailand is 14 years which is quite similar with our context. Shukla and Shaw (2018) found in a recent study that the average age of the firms in India who come into the market as IPO firms are around 12 years
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