Efficiency dynamics of initial public offerings using Data Envelopment Analysis and Malmquist Productivity Index approach

Abstract

This study examined the efficiency and productivity growth of Initial Public Offerings (IPOs) of firms listed on Karachi Stock Exchange (KSE) Pakistan from 2000 to 2012 by using Data Envelopment Analysis (DEA) and Malmquist Productivity Index (MPI) in three stages. The analysis and comparison of the efficiency and productivity growth of IPOs on sectoral basis in the pre and post period of IPOs was also investigated. This is first ever study to measure the pre IPO efficiency across the globe in the field of IPOs. The overall efficiency scores of IPO firms are dismal as the percentage of optimum level of IPO firm’s remained between 5 to 20 percent in all three stages in pre and post IPOs. In the analysis of broader categories of sectors: Private, state-owned enterprises (SOEs), manufacturing, financial and other services sectors, the results of DEA model in three stages suggest that all the sectors were neither found to be Constant Returns to Scale (CRS) efficient nor Variable Returns to Scale (VRS) efficient in pre and post IPOs. Even the efficiency scores decreased in post IPO after one year. However, in detail sector-wise analysis, only Oil and Gas sector showed optimal level under VRS in stage 2. Also, SOEs showed slightly better efficiency than private IPO firms. On average, declining trends in total productivity growth of IPOs after the three years period were observed. The overall results suggest that, after acquiring additional resources, IPO firms did not show improved efficiency level and productivity growth after the period of three years of IPOs.