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Agency Costs, Market Discipline and Market Timing: Evidence from Post-IPO Operating Performance

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  • Daniel L McConaughy
  • Manjeet S. Dhatt
  • Yong H. Kim

Abstract

We compare ninety-nine 1985 IPO firms with a matched sample of “seasoned†firms. The IPO firms were more efficient and profitable, yet exhibited declining market-to-book-equity ratios over the 1985-1992 period. However, we observe no significant trend toward lower efficiency or profitability among the IPO firms. In fact, we observe a significant improvement in operating efficiency five to six years after the IPO. Post-IPO evidence suggests that (1) agency costs do not Increase; (2) the markets discipline entrepreneurs with incentives to maintain pre-IPO performance; and (3) poor stock performance is due to investors who overpay, extrapolating current performance into the future.

Suggested Citation

  • Daniel L McConaughy & Manjeet S. Dhatt & Yong H. Kim, 1996. "Agency Costs, Market Discipline and Market Timing: Evidence from Post-IPO Operating Performance," Entrepreneurship Theory and Practice, , vol. 20(2), pages 43-58, January.
    • Handle: RePEc:sae:entthe:v:20:y:1996:i:2:p:43-58
    DOI: 10.1177/104225879602000205
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    Cited by:

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    2. Laokulrach Marisa, 2019. "Operating performance of SMEs in Thailand after going public," Management & Marketing, Sciendo, vol. 14(1), pages 1-13, March.
    3. David Williams & W. Duncan & Peter Ginter, 2010. "Testing a model of signals in the IPO offer process," Small Business Economics, Springer, vol. 34(4), pages 445-463, May.

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