Effect of Going Public on Performance of Firms Listed in Dar Es Salaam Stock Exchange

Abstract

The importance of going public has been noted by various scholars. However, the existence of limited literature and contradicting findings on the topic casts questions among different individuals on the effect of going public on firm performance. This study examined the effects of Going Public (GP) on firm performance for the listed firms in Dar es Salaam Stock Exchange (DSE). The study adopted an explanatory research design where, MNR Methodology of Megginson, Nash and Randenborgh and panel regression (Random effect) were used to examine the effects of GP on firm performance. The performance was measured by Return on Sales while GP as an independent variable was measured as a dummy. Firm size, age, and expenses were control variables. The study used 14 listed firms for 6 years. Secondary data from audited annual reports and prospectus from selected firms were used for analysis. The study used four models for analysis. Descriptive results based on MNR methodology, mean and median were used to examine the performance of listed firms in DSE with 3 years before GP and 3 years after GP. The study results found that the mean and median of ROS had increased after GP by 23.40% and 22.59% respectively. Panel regression results on effects of GP on firm performance indicated that GP had a statistically positive significant effect at 5%, 10%, 1% and 5% level for all models respectively; implying that for firms’ optimal performance, firms should go public since this will help them to acquire capital to finance their subsequent growth. The study recommends the Government and Policymakers to develop the existing Stock Market and its institutions in Tanzania by investing more resources. Also, DSE and other market players should encourage firms to list in either Main Investment Market (MIM) or Enterprise Growth Market (EGM) with available criteria given since listing helps to improve performance of firms.