The Effect of Initial Public Offerings on Financial Ratios—The Case of NewConnect

For young and innovative firms, which have very limited earnings and low credibility, equity may be essential for improving financial soundness and company’s development. Initial public offering builds the possibility to access the equity and moreover may has positive promotion effects. The aim of this paper is to assess whether the increase in equity influences the companies’ financial condition measured by chosen financial ratios. In order to analyze the financial soundness, widely used accounting measures have been employed as: leverage ratios, performance ratios and liquidity ratio. The literature presents several studies on link between IPO and companies’ financial conditions. However, those studies focus on companies listed on main stock exchanges and hence consisted mainly of stable companies with quite high capitalization. In this study, the research covered mainly young companies, with low capitalization and with a little or no experience on capital market, which is the original approach. Presented results allow to conclude that in the studied sample generally the access to the equity did not increase significantly the value of the debt in capital structure. In cases examined, IPO did not improve liquidity and performance of the companies either. In spite of the fact that in majority of studied companies liquidity was on the safe level, performance did not increase. So either the companies did not use properly the chances given by the public market or other factors influenced the financial condition, so further studies are recommended. The study is restricted by certain limitations related to the sample, which consists of companies that submitted IPO in 2007, and they were still listed after 10 years. Aiming to check the financial ratios after 10 years, it was not possible to add to the sample companies entering the alternative market in the following years. Moreover, the companies represent diverse sectors, so they do not have unique characteristics regarding financial condition. That implies further studies focused on chosen sectors. Such studies, however, would have much shorter time range because of relative short history of alternative market NewConnect. So in order to collect bigger sample based on sectors, the shorter study period would be necessary. The findings of this study contribute to the empirical analysis of influence of IPO on main financial ratios in case of small and medium companies entering the alternative stock markets. Although the subject is widely present in the scientific discussion, there is a little research that focused on companies listed on markets for small and growing companies (multilateral trading facilities, alternative markets).