IPO-related organizational change and long-term performance

Abstract

Mainstream literature on long-term performance of initial public offerings focuses on long-term underperformance. Because underperformance is an anomalous phenomenon, many authors search for explanations based on financial market imperfections. More recently, however, the attention shifts from underperformance to long-term performance in general. This induces the search for other than financial market imperfections in explaining under- or outperformance. This article presents the idea that in many companies the preparation for the IPO and the IPO itself may bring organizational change. It searches for IPO-related organizational change in The Netherlands with interviews of Dutch corporate officers. The research shows that an IPO primarily changes financial management and financial reporting, but that other types of organizational change may also be relevant. Moreover, long-term stock market performance was on average higher in companies where IPO-related organizational changes were reported than in companies where the changes were not reported.