Finance Dissertation Discussion Essay on IPOS IN SAUDI ARABIA

The research project set out to find out the impact of IPO on firms’ performance in Saudi Arabia, the performance of firms before and after IPOs subscription in Saudi Arabian stock market, and whether the impact of IPO on the firm’s performance is positive compared to that of the non-listed firm in Saudi Arabia. The research study employed a quantitative research methodology due to its ability to discern the extent of variation in the variables of the study. It also gives a desirable emphasis on greater sample size; it is objective and reliable; hence preferred for the study. The study looked at various IPOs in Saudi Arabia as a representative of firms that have gone through the process.  The study presented various well known Saudi Arabia firms that have had IPO subscriptions. First, Case Study 1: Saudi Arabia Telecom Company is discussed, Case Study 2: Cooperative for Insurance and four other case studies are also presented. These are: Case Study 3: Almaraie Dairy products company; Case Study 4: Chemanol; Case Study 5: Saudi Kayan Petrochemical Company; and Case Study 6: Etihad Atheeb Telecom. All the studied firms had a positive post IPO performance with share prices going higher over time. Almaraie Dairy Products Company is the only company of the six that had a lower share price in comparison to the initial share price. The oversubscription of these listed companies by the members of the public shows a genuine hunger for possession of property in the stock market.

Chapter 1


1.1. Background information

The Initial Public Offering (IPO) is the first-time share offer on a stock market and a conduit through which private corporations gain access to the capital market by selling securities to the public. It is a way of transfer of ownership of a company from the private owners to the public who join in the bench of primary shareholders. Such transactions allow the company to generate cash more readily than when it resort to retaining profits. The firm offering the IPO, therefore, raises external capital by selling its securities listed in the stock market (Anderson et al., 1995). The principal is used to grow the company’s operations, boost liquescency for stakeholders, to build the company’s financial status, the stock, which can be used to foster acquisitions, mergers as well as workers’ compensation (Anderson et al., 1995; Draho, 2004). IPOs deals are sealed most frequently for the period of bullish stock market when investors’ interest in acquiring new stocks is high (Al-Barrak, 2005; Draho, 2004). It is, therefore, well-judged to infer that issuance of IPO is a strategic tool used by firms to achieve not only their financial synergies, but also long-term missions and goals.

In an unsurprising pattern, IPO activities in emerging markets, like the Saudi Arabia Stock Market, attract the attention of policy makers and academicians; thus, resulting in a series of research in the financial literature surrounding the activities. Previously, IPO centered studies were focused on the initial under pricing, the mutual relation between the IPOs and the economy, the problems associated with IPOs among a many of other interesting IPO research topics. In the light of the performance of IPOs, a significant number of studies have established that the performance of the IPOs decays soon after listing publicly on the stock market. The studies attribute the decline changes in ownership structure among other reasons. Examples of such studies include Alanazi, Liu and Foster (2011) on the Saudi Arabian IPOs and Privatized firms whose results were in line with others reported by Jain and Kini (1994) on the American IPOs, Pagano, et al. (1998) on the Italian IPOs, Kim, et al. (2004), and Al-Barrack (2005) on the Saudi IPOs. Firms Profitability Conversely, a few research studies, has established that IPOs improve the performance after going public (Al-Barrak, 2005; A. Alanazi et al., 2011). If the research results of the majority of the studies are anything to go by, then it is without doubt a serious dispute to claim that IPO benefits the issuers.

It is important to note that Saudi Capital Exchange Market referred to as Tadawul has evolved and restructured as from the year 2003. Over the period, the number of firms listed in the stock market has almost doubled practically growing from 70 companies in 2003 to 129 in 2009. The market index, locally known as TASI, grew from 2500 points to a record high of 20,000 points in 2006. Moreover, the Saudi stock market emerged ninth among emerging exchange markets with a market capitalization worth $ 74.86 billion (Alanazi et al. 2011). The potential benefits of the stock market have encouraged firms to go public. Nonetheless, there are merits and demerits associated with that type of strategy. The decision for a firm to offer the IPOs is always guided by the strategy of improving its performance apart from the desire to gather cheap capital during a bullish market period.

A quick preview of previous studies relating to IPOs, globally and nationally, revealed over focus in some specific aspects of the IPO whereas at the same instance, giving diminutive or no consideration to others. This disparity is an evident feature that arises due to the development status of the nations under speculation. It is an undeniable fact that IPO subject matter is extensively researched in developed countries but not in developing world. Due to the economic differences between these two groups, it is not practical to apply the study results carried out in developed stock markets in the developing markets. The developing markets are characterized by inconsistent and inadequate data in addition to the fact that such markets operate in unfriendly environments. Subsequently, there is a necessity to conduct studies on IPO in the developing world so that standards can be created from the inferences made. Therefore, this study intends to take advantage of this unfortunate situation and provides the required information in the developing stocks market.

1.2. Context & Purpose of the study

The aim of this study is to appraise the financial performance of Initial Public Offerings in Saudi Arabian stock market just before and after going public on the exchange market. The performance trends before and after the listing citing possible premises to explain the trend observed will be a key element of the performance analysis. The study also aims to establish the benefits that issuers accrue from trading on Tadawul and hence the long term benefits those firms enjoy; as a result, of listing their bonds, current stock and preferred stock on the exchange market.

This study seeks to establish a link in a firm’s performance before and after the listing and then compare the performance trend to that of a firm not listed on the exchange market over the same period. The performance between the two firms should be able to reflect the impacts of IPOs on a firm’s performance. The non-listed firm in this study will play a control variable of the study against which comparison and consequent conclusions will be deduced.


1.3. Research Questions & Hypotheses

This study mainly aims to investigate the following research questions:

  1. What is the impact of IPO on the firm’s performance in Saudi Arabia?
  2. How do the firms that went for IPOs perform in Saudi Arabian stock market (just before and after going public)?
  3. Whether the impact of IPO on the firm’s performance is positive compared to that of the non-listed firm in Saudi Arabia?

This study, in order to investigate the above research question, will test two hypotheses regarding the performance of the firm before and after listing on the stock market while at the same time, evaluating the performance of a listed company relative to an unlisted counterpart. The hypotheses to be tested are:

  • IPO performance impacts the firm’s financial performance negatively.
  • Listed firms through IPOs perform better than the ones not listed on the market.

The hypotheses above will be tested quantitatively, according the share prices pre and post IPO, and consequently, qualitatively to address the objective of the study. The findings will be used to draw recommendations for the Saudi Stock Market and firms that are yet to have their securities listed on the exchange market.

1.4. Importance of the Study

This study seeks to explore the performance of firm’s prior and after the Initial Public Offerings while expecting results that deviate from what other studies have shown. Despite the immaturity of Saudi Stock Market, it should not be an excuse not to explore the benefits that accrue to issuing of IPOs. This study will offset the balance between data unavailability and the needed numerical proof that indeed issuing IPO has more to it than just a quick way to cheap capital. The findings of the study will be valuable in conceiving the Saudi business community not listed in the Saudi Stock Market to join the market. Therefore, it will be an essential tool in the campaign for expansion and development of the Saudi Stock Market. The recommendations to be deduced from study results will aid in capacity development not only between the issuer and the stakeholder but especially within the intermediaries, the banking sector.

1.5. Limitations of the Study

The study can be deterred by several factors. First, owing to the type and demands of the study, the time slated for it does not suffice. The study requires much time in data collection process due tedious bureaucratic protocols in place. Second, the data required for analysis of the study are subject to the company’s manipulation. The nature of the data to be acquired entails sensitive transaction information; hence, the companies will share them with extreme prejudice. Finally, the analysis will pick a single company; analyze its performance before and after listing its IPOs then comparing the results with a non-listed company in the same field. The approach is likely to yield impartial results depending on whether the chosen company is private or public. In addition, the reasons for going public vary among companies just as the response of the performance of the company after going public. The variations among companies will be omitted in this analysis. In this case, the results will be skewed and non-representative of the situations in the stock market. 

1.6. Layout of the Study

Chapter 1: Introduction – Chapter of this study gives an overview of Initial Public Offering. Detailed background information on IPO is given accompanied by study examples that discuss different dimension of the subject. The Chapter also presents a discussion on context and resolve of the study, research queries and postulates, importance of the study and the imitation of the studies.

Chapter 2: Literature Review:  The Chapter presents discussion of previous studies on IPO performance in Saudi Arabia. It documents a series of studies that were meant to investigate the status of IPO in Saudi Arabia, the performance of IPO in the global stock market, the performance of IPO in Saudi Stock Market, the benefits of IPO to the firms and a summary of the chapter. This Chapter, therefore, assist in building the research problems by examining what has been studied regarding IPOs in Saudi Arabia

Chapter 3: Research Methodology: This Chapter gives particulars of the systematic ways of handling the research problems. It documents a brief overview of research methodology, highlighting the different approaches then specifying the one to be used in the study. Similarly, the chapter identifies the research methods to be used and justify the preference. This chapter also highlights the data type and source, the protocol to be implemented in collecting the data and the analysis technique to be used in the study.

Chapter 4: History of the evolution of IPO in Saudi Arabia: This Chapter will account for the history of evolution and development of IPO in Saudi.

Chapter 5: Performance of IPOs in Saudi Arabia: Case studies; This chapter analyzes six particular Saudi Arabia firms for their performance before IPOs and after going public and being listed in the stock market.

Chapter 6: Analysis of Performance of IPOs in Saudi Arabia: This chapter carefully analyzes the reasons as to why companies would perform the way they do; before and after IPOs; giving special attention to the case studies of Saudi Arabia firms.

Chapter 7: Conclusions and Recommendations: This chapter summarizes the research project and gives a recommendation into future areas that can be studied in relation to the performance of Pos in Saudi Arabia.

Chapter 2

Literature Review

2.1. Introduction

This chapter explains to great depths the pre and post-Initial Public Offerings processes, performances and the benefits associated with them and consequently giving a literature evaluation of the performance of IPO in Saudi Stock Market. Several studies have been done worldwide to explore the performance of IPOs and its effects on firms’ performance, but little has been done on the subject in Saudi Arabia despite the fact that the Saudi Stock Market is identified to be one of the best emerging exchange markets globally. A prior study on the same subject targeted the performance of IPOs giving weight to the key factors around the pre and post IPO listing. This study, however, tends to take a different direction by comparing firms from different sectors pre and post IPO.

The previous studies and documented literature on initial public offerings focused their investigations on a number of aspects that closely linked to the initial public offerings. The aspects covered by the support of these studies entailed strength and obstacles counter to the IPO, the primarily understated IPOs and the diminutive, and stretched odd return. It also focused on the disparity in businesses performance amid pre and post-IPO, and the principles and explanations that can be cited to account for the variations in performance in the event of IPO. Comparison of the firm’s performance before and after the IPO is one of the extensively researched subjects in the world of IPO prose work. Nevertheless, studies on the IPO theme in small newly started markets, like Saudi Arabia, are still distant study wise in emerging world thus crafting a literature gap which need to be filled and consequently necessitating this study (Draho, 2004).

This chapter is structured into five sections. The first section covers the introduction of the chapter. The second section will present discussion on Initial Public Offering Status in Saudi Arabia. The third section will discuss the performance of IPO in global stock market. The fourth section will present the discussion of the performance of IPO in Saudi Stock market. The final section will focus on the benefits of IPOs.

2.2. Initial Public Offerings Status in Saudi Arabia

Al-Barrack (2005) identified in his study that no explicit documented IPO cases exist in Saudi Arabia and asserts that of all the listed companies in the Saudi Stock exchange market just ten cases occurred between 1988 and 2004. This piece of facts shows that the Saudi Stock market is in fact, emerging. However, recently it has remarkably increased its listing portfolio and current trade securities for over 120 firms. The interrupted growth in the number of firms listing their securities is attributed to, among other factors with respect to Alanazi study results, the success of the listed companies. In addition, the revenue from the vast oil resources has provided great liquidity that stimulated the process of introducing new IPOs into the Saudi Stock Market. Also, the banking sector which was at infancy in the early 2000s has matured over time establishing a good transaction background between the issuer and the investor (Al-Barrak, 2005). The favorable business environment created over the past decade triggered the increase of the growth witnessed and confessed by Al-Barrack in his study. It is, therefore, critical that the benefits enjoyed publicly trading companies be shared by firms not already listed in the stock market.

2.3. The Performance of IPO in global stock markets

In regards to issuer’s performance after the Initial Public Offerings, there seem to be a quasi-agreement among most scholars as to whether Initial Public Offerings impacts negatively on the issuer’s performance or if the reverse is also the case. For instance, Mikkelson et al., (1997) recorded a performance decline after the IPO among samples of the United States initial public offerings. Another study on a total of 180 Japanese IPOs that were done by the dynamic duo, Cai and Wei in the same year, found a relatively stronger fall in performance in the post-Initial Public Offerings as compared to the pre-Initial Public Offering (Cai and Wei, 1997). A similar documentation has also been made for the United States Initial Public Offerings by other scholars who carried out the same study. According to such studies, the post-IPO underperformance is evident in most accounting measure studies (Alanazi 2011). Jain &Kini (1994) examined 682 United States companies in the span of 1976 and 1988 and recorded a significant decline in performance from the year prior to the IPO to the five years following the listing.  Partch and Shah (1997) found a significant decline in post-IPO performance on a sample of 283 firms in United States. Wang (2005) probed a sample of 747 Chinese firms IPOs. Wang study results were in line with other studies. Wang established a sharp decline in the operating performance evaluated in terms of the return on assets and sales to assets with China viewed as a transitional economy. Wang further established a positive relationship between the change in ownership structure after the issue of the IPOs and the firm’s performance, such that when the owners retain the majority of the stocks the firms show a less severe decline. 

In the one of the world’s strongest and organized free market, the European Market, study results have made entries into papers and drew conclusions that support immediate decline after the issuing the IPOs. A trio research team that composed of Pagano, Panetta and Zingales in 1998 found out that the post-Initial Public Offerings are characterized by a decline in performance among firms in Italy. The group did a performance appraisal between pre and post initial public offerings drawing conclusions on the possible motivating factors that lead to the firm issuing the securities in the first place. The study results revealed that the post initial public offering performance was poor than the pre-performance (Pagano et al., 1998). Other studies carried out in Germany, and Spain revealed similar trend of performance decline after issuing the IPOs (Jaskiewicz et al. 2005). Furthermore, Khurshed, Peleari&Vismara (2005) found that for 411 of Initial Public Offerings listed on the London stock market between 1995 to 1999, that these IPOs were unable to sustain their superior pre-IPO performance in the market after the listing.

However, not much can be inferred for developing countries that are majorly characterized by underdeveloped market framework accompanied by privation of not only consistent but also available data. In line with this argument, a study that was conducted by Kenneth et al. stands out to be an exception. The study targeted Thai Initial Public Offerings, and this group of researchers confirmed a similar configuration of performance of the IPO that exactly replicates what occurred in the developed world, but at a relative larger scale (Kenneth et al. 2004). According to the authors, the decline of performance in Thai progressed much faster than in United States implying statistically that the drop is faster in developing-world than the developed world (Alanazi et al. 2011).

A study by Al-Barrak focused on Saudi Initial Public Offerings motivations, performance and obstacles as well documented a decline in performance during the post initial public offering out of date. From his experience while trying to access data for the study, it is obvious that the IPO data in Saudi Markets are treated with extreme confidentiality. The author established the decline in performance using indices such as return on assets, return on savings, among others (Al-Barrak, 2005).

According to a study conducted by Kim, Kitsanunnarat&Nofsinger (2004) a pattern similar to the advanced economies exists in the emerging markets. The pattern though exhibits much greater post-IPO performance decline than witnessed in other markets. In accordance with the findings of the study, the reductions in post-IPO performance in Thailand firms are tenfold grander than in the United States. The study established that Thai’s operating performance after three years is 75 percent less than a year before the IPO compared to nine percent decline in the United States IPOs. The study used two measures to establish the working performance of IPOs. They used the median percentage change of operating income on total assets and the median percentage change of operating cash flow on total assets.

2.4. The performance of IPOs in Saudi Stock Market

A study that was conducted by Alanazi and colleagues that aimed at exploring the performance of IPOs and factors that affect it found that the Saudi Stock Market IPOs exhibit a momentous fall back in the post-IPO performance. This was in comparison to the pre-IPO period as rated and valued by the return on assets and return on sales. The study also established that the worsening in performance is associated with the IPO event (Alanazi et al. 2011). However, they argue that the decline in performance is accompanied by a significant increase in sales volume and capital overheads. This defies the scarcity of opportunity theory. Therefore, they went ahead to characterize the waning in performance to the business fraternity’s yearning to cash out as the windows of opportunity recommends (Alanazi et al. 2011).

Another study spearheaded by Alanazi and Liu in 2013 investigated the operational and financial performance of 5 IPOs and found out that firms’ performance declines after listing on the Saudi Stock Market. In this study, the deterioration in performance was attributed to the firms’ change from private ownership to public ownership. The restructuring and re-organization as a result of the listing bring with unseen expenditure and instability in the operation leading to the poor performance. However, these situations are elevated when the firms stabilize after full restructuring and consequently as observed by the study, these companies have a financial advantage over the other non-listed companies (Alanazi& Liu 2013).

2.5. The Benefits of IPOs

As highlighted in the previous sections, going public is a prospect for investors to expand their investments. The initiators use IPO as a stride to reach the structure of ownership in the company that maximizes their total proceeds from its eventual sale. By means of selling a considerable proportion of their stock, the initiators stand chances of losing control of the firm and may equally cease to play a significant role in the firm. The stand was established by Zingales (1995) on the study of insider ownership and the decision to go public.

The decline in firm’s performance after issuance according to the results of the previous studies opted to have frustrated the growth of the Saudi Stock Market, which according to the trends in the past decade does not hold. As was insinuated by one of the authors, the deterioration in performance is as an outcome of cash out during the bullish market period and should be attributed to the negative impact of listing of the stock in the market. It also emerges from previous studies during the IPO event, ownership of the company changes that result in the restricting of the firm. The restructuring process escalates the expenditure costs of the firm contributing to the poor performance. Proofs of negligible increases in a firm’s profitability can be found in Cabeza& Gomez (2007). The two authors explored profitability deviations among 58 companies operating in Spain, and they found that profitability improved in the long-run but the upshot was insignificant in the short run. Nonetheless, the preponderance of the studies, such as Megginson, Nash and Van Randenborgh (1994); Wattanakul (2002) and Gupta (2002) found momentous increases in profitability.

Most of the studies evaluate the impacts of the IPO on the business performance. These studies gauged both the short and long-run returns as indices of performance and accounting-based performance. Stock return performance in the short and long-run has been widely investigated while the converse, accounting-based operating performance, is less examined (Balatbat, Taylor & Walter 1994) However, irrespective of the measures of performance used, IPOs’ underperformance after issue is evident in almost all studies (Alanazi, 2011).

In his study, Al-Barrack (2005) found out that an upturn in mutual stock firms in the Saudi Stock Market would progress more than a few economic factors, such as the growth of the economy, foreign business venture turnout in Saudi Arabia. It also touches on the balance of trade with strong free market giants and the unemployment rate with the nation. While summarizing his research paper, Al-Barrack pointed out that going public has several advantages that include strengthening their financial position, increase of public trust in the firm, and attracting qualified personnel. The firms also stand better chances of standing stiff competition, working on the problems of poor management, alleviating financial constraints and eliminating family succession and control over the firm’s business (Al-Barrak, 2005).

Pagano et al. (1998) emphasized that listing of IPO on Saudi Stock Market is the perfect way of overcoming borrowing constraints by enabling the firm to access equity sources of finance in the stock market as opposed to acquiring the expensive bank debt finance. These firms are, therefore, having a greater bargaining power with banks since they have alternative sources of borrowing. They went ahead to document a portfolio diversification by the listed firms and explained that this is possible since the shareholders and/or entrepreneurs can raise capital at their discretion as opposed to bank debt financing. The IPOs was also associated to market discipline since the stakeholders of the listed firm are not only aware of hostile takeovers but also participates in every decision making regarding the firms operations. Finally, the study results revealed that publicly traded firms have greater investor recognition because the listing of the company in the financial market plays a key role in advertisement of the firm (Alanazi et al., 2011).

2.6. Summary of the Chapter

The status of Initial Public Offering within economic jurisdiction is accounted as follows; the Saudi stock market is an emerging one in developing economies. As a result of the success of listed companies, the portfolio of listing firms in the market continues to rise. Moreover, the Saudi banking sector is maturing at a higher rate; hence, a sound cash management system between the issuer and the targeted customers are in place.

At global stock market level, a number of studies show that the post-IPO performance among listing companies declines. For instance, the studies conducted by Jain &Kini (1994), Pagano et al. (1998), Partch&Shah (1997), Wang (2005), Khurshed, Peleari&Vismara (2005), Jaskiewicz et al. (2005) and Kenneth, et al. (2004) among others established a declining trend after the studied firms went public. The trend stretched across different economic regions ranging from United States, Europe to Asian.

The trend at the global stock market is also observed among Saudi firms performance after listing on the stock market. Alanazi et al. (2011) and Alanazi& Liu (2013) conducted a study on the performance of firms during the post-IPO periods among firms and arrived at the same conclusion as other authors who performed similar studies in different regions. The degeneration in performance is as a consequence of cash out during the bullish market period and should be attributed to the negative impact of listing of the stock in the market. It also emerges from previous studies during the IPO event, ownership of the company changes that result in the restricting of the firm.

Despite the negative implications of listed by firms in the stock markets, the IPOs benefits firms in some ways. First, IPO prospects enable the investors increase their investment bases. Going public by firms has several advantages that include strengthening their financial position, increase of public trust in the firm, and attracting qualified personnel. The firms also stand better chances of standing stiff competition, working on the problems of poor management, alleviating financial constraints and eliminating family succession and control over the firm’s business.

Firms list their initial offerings on the public domain with the aim of benefiting, but these studies forecast doom in the post-IPO performance of the firms yet many firms are looking forward to venturing into this endeavor. Also, the studies focused only on the listed companies; therefore, little is known about the performance of listed companies against unlisted counterparts.

Chapter 3

Research Design

3.1. Introduction

This chapter presents a discussion of research methodology and methods used to riposte to the research queries. The Chapter will represent the discussion of research methodology in general, as well as the specific method to be implemented in this study. The research methods discussed in this chapter will include ones that have been used in similar studies to collect and analyze data. In addition, the chapter will describe the population and the sample selected in this study. The criteria for selecting the sample are also described in details in the chapter.

This chapter is structured into five sections. Section 1 will discuss research methodology and methods. Section 2 will present a discussion on the data sources to be used for analysis in the study. Section 3 will present discussion on sampling techniques that will be used to choose a firm to be used in the analysis. Section 4 will deliberate the techniques of analysis to be employed in the study while section 5 will present a summary of the whole chapter.

3.2. Research Methodology & Methods

Research methodology is the path of finding the answers to the research question. It constitutes the steps the research undergoes to solve the research problem. The sequencing of the steps is flexible; hence, can be altered in the due course of the process. At each operational step in the research process, multiple methods, procedures and models of research methodology assist in achieving the study objectives (Kumar, 2010).

The steps involved in the research process are influenced by the quantitative and qualitative distinction; thus, the approaches at a researcher disposal are either quantitative or qualitative. Consequently, there are two approaches of methodology such as quantitative and qualitative research. The study will employ quantitative research methodology due to its ability to discern the extent of variation in the variables of the study. The methodology also gives a desirable emphasis on greater sample size. However, most importantly, quantitative methodology is objective and reliable; hence preferred for the study (Kumar, 2010).

Research method is a procedure, scheme and algorithm used in research. The methods include theoretical procedures, experimental studies, numerical schemes, statistical approaches that are implemented in data collection and analysis (Rajasekar, Philominathan & Chinnathambi 2006). The research methods will include stratified sampling that will implement filtering mechanisms to obtain desired sample.  

3.3. Data Source

This chapter employs mainly secondary data for analysis so that the set objectives of the study are achieved. One of the major challenges faced by IPOs performance studies is data availability and accessibility in any stock market setting. This challenge is taken a notch higher in the emerging market structures. In spite of the pointed obstacle, one of the central regulations put in place by the Saudi Capital Market Authority (CMA) demands the Saudi firms to share their financial reports old to going public on the financial market. The data sets needed for analysis in this study will, therefore, be retrieved from Saudi’s Capital Market Authority database (Alanazi et al. 2011; Alanazi et al. 2010; Alanazi and Liu 2013).

3.4. Sampling of the Firms

The study will filter out from the database firms that have traded publicly on Saudi Stock Exchange market for a period of not less than six years. Financial statements for the pre, during and post-IPO will be collected from Saudi Stock market. The financial records to be gathered will include both the firm’s quarterly and annual reports. In order to get the desired firm from a list of firms that have been operating for more six years, the following restrictions will be applied. First, firms that listed their offering as start-ups will be exempted since such firms need a longer duration in order to evaluate their performances prior to the listing. A second category of firms to be filtered out of the study includes those that at the time of listing went on the stock markets as mergers or acquisitions.

The two filters together with the operation period restriction will reduce the sample field to a manageable number of companies belonging to different industries like insurance, media and publication, telecommunications, petrol retailers, manufacturing investments among other firms belonging to some sectors trading in the stock market. The filtering should give a homogeneous sample which can be projected to be of the following stratification; private limited liability firms, private joint stock firms and government firms. A selected homogeneous sample from the sectors stratified by the classification above will be selected, and analysis of their stock prices done citing financial status prior and after listing in the market (Alanazi et al. 2010).

3.5. Analysis techniques

After a successful identification of the sample groups in each sector and stratification in accordance with the company type is done, a descriptive statistics analysis will follow. A cluster table among other statistical tables and statistics will be determined and presented in the standard statistics outcome tables. In order to determine the performance especially, the profit making ability of the firms, a matched pair methodology will be employed. The methodology compares the performance change between different periods giving a window for exploring the performance change with the time step. For instance, for the companies whose performance in the post-IPO will be better it would be prudent to draw a conclusion that positively implicates the listing of the IPO. Conversely, a firm with worse post-IPO implies a negative performance. After establishing the positively performing firms and the negative ones, price share comparisons can then be done (Alanazi et al., 2010).

 3.6. Summary of the Chapter

 This Chapter presents discussions relating to research design parameters. A distinction between research methodology and methods is made whilst identifying the methods to be used in the study. The study will employ quantitative methods in solving the research problems while stratified sampling will be used to identify the firms to be used in the analysis. Quantitative research method will be used due to its ability to discern the extent of variation in the variables of the study and its emphasis on greater sample size. However, most importantly, quantitative methodology is objective and reliable; hence preferred for the study. The chapter also identifies matched pair methodology to be used in analysis.

Chapter 5

Performance of IPOs in Saudi Arabia: Case Studies

5.1. Introduction

This chapter presents the selected case studies in order to investigate the main research questions set out in the Introduction chapter. They mainly focus on finding out the impact of IPO on the firm’s performance in Saudi Arabia. That is, they aim to find out the performance of IPOs in the Saudi Arabia stock market just before and after going public.  The research also sought to find out whether IPO subscriptions have a positive performance on companies in comparison to non listed companies in the country.

Each case study is presented in different sections in this chapter and the overall analysis of these case studies are presented in the next chapter. First, Case Study 1: Saudi Arabia Telecom Company is discussed, Case Study 2: Cooperative for Insurance and four other case studies are also presented. These are: Case Study 3: Almaraie Dairy products company; Case Study 4: Chemanol; Case Study 5: Saudi Kayan Petrochemical Company; and Case Study 6: Etihad Atheeb Telecom. This chapter of the study will look at the IPO prices of the shares and the current prices of shares for these companies. It will also look at the major aim of the companies in subscribing for IPOs. While some of the companies participate in IPOs to raise capital to venture into new money generating projects, others do it so as to get public recognition.



5.2. Case Study 1: Saudi Arabia Telecom Company

The Saudi Arabia Telecom Company was conducted in the year 2003 and resulted in generation of $ 4 billion. According to the then minister of Finance and National economy, Ibrahim Al- Assaf, the IPO had been oversubscribed. Over $ 9.5 billion would have been collected if all the individuals that had applied to purchase shares had been awarded. This IPO was used in expansion of the largest telecommunication companies in the country; resulting in stability and growth of the network in comparison to its competitors (Algosaibi and Olayan, 2005). Subscriber numbers grew as a result of the expansion which in turn resulted in a growth in income for the company. In 2004, within a year of the IPO subscription, the Saudi telecommunications Company had made over $ 760 million in profits after tax and expenses. The company’s assets were over $ 11 billion, and analysts were already predicting over 18 % increase over the next year. The company listed 30% of its shares which was over 89 million shares at about 145 Saudi Riyals. This is equivalent to about $ 44. About 59 million of the shares were sold to individuals in the Saudi Arabian market, while the rest of the shares were sold to pension firms in the public sector.

The successful venture was part of the government’s long term plan in increasing the number of companies in the country that are privatized. It is a general notion in most parts of the world that private companies’ managers are likely to be better run because the top executives are under more scrutiny and might be working on a performance based contract. On the other hand, a public company executive might be a bit lax on the job because they might feel as if they have better job security and a pension in waiting when they retire (Al Omran, 2014). The current share price for the Saudi Telecom Company is SAR 75. This is an improvement from the initial SAR 70 during the IPO. The Saudi Arabian Telecommunication Company has made tremendous improvements over the last three years from a price of SAR 30.

Unfortunately, the company’s share prices were affected during the 2006 stock market crash in the country, and the 2008 economic crisis in the world. The prices have come up from 32, 50, to 43, 50 and now stands at 70. The telecommunications industry seems to be troubled after the order of dissolution of the Saudi Integrated Telecommunications Company was made through a royal decree. The company was given three months in May to ensure total dissolution and compensation of the relevant stakeholders. The company had just had its first IPO in 2011, but its financial troubles seemed endless. Appointed professionals from the Ministry of Telecommunications and Information Technology and the Capital Markets Authority were appointed to ensure proper and efficient liquidation of the company and closing down of all company operations. The manner in which the order for dissolution of the company was made was unusual since it was dictated that debtors be paid first before other parties such as founders.

The company’s short life was composed of a struggle to get its operations running and off the ground especially high speed network support for clients. One of the major stakeholders was a Hong Kong based international telecommunications player. However, the company’s plan on paper was not thorough in how physical operations would be executed, which is unrealistic especially when competing against established players such as Etihad and the Saudi Arabia Telecommunications Company. The company’s IPO had been oversubscribed by over three times and the company had managed to rise about SAR 300 million (Arabiya and Mustafa, 2013).

Table 5.1 provides a summary of the performance of Saudi Arabia Telecom Company in the Saudi Arabia stock market just before and after going public.

Table 5.1: Performance Summary of Saudi Arabia Telecom Company

Initial share price SAR 70 in 2003
Current share price SAR 75
Company percentage sold 30 % of shares at $ 4 billion
Major impact of IPO Major expansion and network upgrading

5.3. Case Study 2: Cooperative for Insurance

The Cooperative for Insurance held its first IPO in 2004 when the company floated 70 % of its share capital worth SAR 250 million. This was a double increase in capital from the amount available at that time SAR 250, million. The increase in capital led to major development changes in the company such as introduction of new insurance plans, such as the Manasek policy for individuals travelling to Mecca, and the Umra performance insurance policy. These policies contributed to a growth in the number of customers which in turn contributed to a positive return on investments made. The increase in capital also contributed to changes in management such as the introduction of strategic business units to ensure proper business planning and accountability of available funds.

The company’s performance improved within a year and contributed to it’s a rating from Standard and Poor (S & P). The good performance of Cooperative for Insurance was on a continued rise for the next three years leading to an A rating each year. As of 2014, the Tawuninya Cooperative for Insurance Company has a share capital of 100 million shares each valued at SAR 10; with 52.5 % being held by the members of the public, 23 % by social insurance, and 24.5 % by Public Pension Agency (Tawuninya, 2014).

Table 5.2 provides a summary of the performance of Cooperative for Insurance in the Saudi Arabia stock market just before and after going public.

Table 5.2: Performance Summary of Cooperative for Insurance

Initial share price SAR 10 in 2004  
Current share price SAR 32.37  
Company percentage sold 70%  
Major impact of IPO New insurance plans and more client numbers  


5.4. Case Study 3: Almaraie Dairy Products Company

The company holds about 42% of the dairy market share which it can attribute to its early start in the year 1976. The Riyadh based company is quite organized in terms of operations. The company keeps cattle, manufactures dairy products and markets and sells their final products to clients. Just recently, the company added infant nutrition and bakery sections to its portfolio to expand their niche and resulting income. In 2005, Almarai listed their shares which had a 4.5 million shares offering to clients for a 30 % share of the company. The shares were being traded at $ 136 each which is equivalent to SAR 512. The shares were oversubscribed by about 3 and a half times resulting in the raising of $ 2.46 billion; an equivalent of SAR 23 billion.

Table 5.3 provides a summary of the performance of Almaraie Dairy Products Company in the Saudi Arabia stock market just before and after going public.

Table 5.3: Performance Summary of Almaraie Dairy Products Company

Initial share price SAR 512 in 2005
Current share price SAR 75.56
Company percentage sold 30%
Major impact of IPO New product lines



5.5. Case Study 4: Chemanol

Chemanol is a methanol production company based in Saudi Arabia which launched an IPO in the year 2008. The methanol producing company listed 50 % of its shares geared towards raising $ 193 million; equivalent of SAR 723 million. Chemanol was able to attract many clients for the IPO which can be attributed to its positive growth trend over the years with an average annual income of $ 123 million and over twenty production units to keep the company going. The $ 120 million obtained from the IPO was budgeted for further expansion and increase in market share, with a proportional income increase. The IPO subscription was handled by Samba financial group (Arab News, 2014).

Table 5.4 provides a summary of the performance of Chemanol in the Saudi Arabia stock market just before and after going public.

Table 5.4: Performance Summary of Chemanol

Initial share price SAR 10 in 2008
Current share price SAR 18.31
Company percentage sold 50%
Major impact of IPO Increase in market share

5.6. Case Study 5: Saudi Kayan Petrochemical Company

Saudi Kayan is a petrochemical company located in the largest industrial town in Saudi Arabia.  The company built the $ 6 million complex in Jubail so as to increase products such as ethylene, polypropylene and ethylene glycol; all of which have a high demand in the market. With the new manufacturing complex, the company also set out to produce dimethylformamide, acetone and other downstream products which also have a high demand among many small and upcoming industrial firms.  Samba Financial Group handled the much anticipated Saudi Kayan Petrochemical Company IPO that was held in 2007; and was expected to rise over $1.79 million. The 45 % company share expected funds were to be used in building a 4 million complex in Jubail where most industrial companies are located. Kayan’s IPO was oversubscribed by over five times, but it got to raise the amount of funds that it had planned for: $ 1.8 billion.

Even further growth in market share and strategic units is expected from Kayan, having initially partnered with Saudi Basic Industries Corp (SABC) and sold 35 % of original shares to this partner. Just like all other previous IPOs, the Saudi Kayan listing was only open to Saudi nationals and was set out to sell over 650 million shares at SAR 10 each. The current Saudi Arabia Kayan Company price is SAR 17. This reflects an increase in share price which should be reflected in the dividends that shareholders earn at the end of the current financial year.  Currently, the public owns 45 % of the company’s shares while just 20% is owned by Kayan Petrochemical Company.

Table 5.5 provides a summary of the performance of Saudi Kayan Petrochemical Company   in the Saudi Arabia stock market just before and after going public.

Table 5.5: Performance Summary of Saudi Kayan Petrochemical Company 

Initial share price SAR 10 in 2010
Current share price SAR 17.10
Company percentage sold 75%
Major impact of IPO Increase in market share and number of clients catered to


5.7. Case Study 6: Etihad Atheeb Telecom

Even though the Saudi Arabian government was enjoying a monopoly through the Saudi Arabian Telecommunications Company, they felt the need to license other players in the industry. Competition in the industry would be a positive contributor to improvement of the economy in the country and serve as a platform for the long term development plan (Zattoni and Judge, 2012).

The Etihad Atheeb Telecom applied for an operating license in 2007, and invested over $ 137 million which is about four hundred and ninety nine Million Saudi Riyals to ensure wide service and network availability for a 3.5 GHz frequency network. In 2008, the company applied for a listing at the Tadawul through an IPO and was granted to sell 30 % of its shares to the members of the public. The shares were set at a price of ten Riyals per share and the expected capital that was to be raised was three hundred million Saudi Riyals (Arab News, 2014). The company posted the listing to the next year because they felt that the market conditions were not favorable at the time. The company launched its IPO in early 2009, with each share going at a cost of ten Riyals. The IPO was quite successful and was oversubscribed by over 300 %. Etihad Atheeb Telecom was able to acquire funds to expand their coverage and pay up on products and services contracts that they had entered into. EtihaadAtheeb Telecom had gotten into a contact with Motorola to set up infrastructure related to optimization and customer care services and network planning. In addition to Motorola, the company also got into contracts with Wipro and ZTE (Arab News, 2014). the IPOs hold a great importance in Saudi Arabia in not just increasing available income for companies, but also in create jobs and improving available infrastructure so as to place the country at a better competitive position in comparison to other countries in the region and internationally. The WiMAX that the company acquired would ensure that high quality communication services were offered to clients. The company would also offer competitive services in comparison to Saudi Arabia Telecom Company which would contribute to healthy competition in the communications industry (Zattoni and Judge, 2012).

Table 5.6 provides a summary of the performance of Etihad Atheeb Telecom in the Saudi Arabia stock market just before and after going public.

Table 5.6: Performance Summary of Etihad Atheeb Telecom

Initial share price SAR 10 in 2009
Current share price SAR 91.86
Company percentage sold 30%
Major impact of IPO Network upgrading and increase in market share

5.8 Summary

The chapter has looked at selected case studies as an analysis of the performance of IPOs in Saudi Arabia. Al the case studies discussed above were oversubscribed; some by over 300%. This shows the eagerness of the Saudi nationals to invest in the country’s stock market and increase their purchasing power in the long run through the savings acquired from trading. The first case study was Saudi Arabia Telecommunications Company which used the raised funds in upgrading of its facilities and expansion into new geographical areas within the country. Within the year, the company had made $ 760 million in profits, with higher returns expected in the next year as the number of subscribers had increased as well. The IPO was largely oversubscribed because the company had only listed 30 % of its shares.  The second case study is the Cooperative for Insurance which helped the company launch new insurance plans that were in demand in the market.

The third case study is Almaraie Dairy Products Company, which assisted the company launch a new infant line. Of all the case studies that were explored, this is the only company whose current share price had plummeted downwards in comparison to the IPO. The dramatic decrease has been attributed to fierce competition in the industry, and the instability of agricultural related products due to unforeseen circumstances such as livestock diseases.   The fourth case study is Chemanol, whose major aim was to be able to expand so as to cater to a larger market share and therefore attract more clients.  The fifth case study is Saudi Kayan Petrochemical Company whose IPO largely contributed to the company’s expansion in a multimillion factory that has catered to the region’s needs in terms of petro chemicals. The final case study is Etihad Atheeb Telecom whose earnings from the IPO were used in network upgrading and market share growth. While some of the companies participate in IPOs to raise capital to venture into new money generating projects, others do it so as to get public recognition.

Chapter 6

Analysis of Performance of IPOs in Saudi Arabia

6.1. Introduction

This chapter seeks to analyze the main information that can be derived from the case studies of a selected number of companies before and after the IPOs. In some case study situations, the share prices went up while some companies share prices went down. The share prices could have gone down because companies over valued their worth so that they could appear attractive to potential investors (Kinyua, Yanumba, Gathaiya and Kithiku, 2013). Such a measure though unethical, would serve to attract the highest possible number of investors and ensure that all shares were purchased. Later on, no matter the amount of money that was raised through the IPO, it would be impossible to multiply it especially if the market conditions in the industry of the particular company were unfavorable. It would also be impossible to maintain an attractive share price if a company did not have a good plan in place to put the IPO money into good use. A company such as Saudi Arabia Kayan petrochemicals had a solid plan in place which involved contracting of experienced companies in putting up a 6 million new plant that would increase its production capacity and in turn increase its income through sold and marketed products (Zattoni and Judge, 2012).

6.2. Overall Analysis of Case Studies

So far, the performance of IPOs in Saudi Arabia has been positive, with companies meeting the goals of the capital that they intended to raise through listing. All the IPOs that have been launched in the country have been oversubscribed especially for large companies with a good management record and reputation to its name. This suggests that there is an existing “thirst” to invest in the stock market (Arab News, 2014).  In 2003, the Saudi Telecommunications Company organized an IPO which was largely successful. It was a win- win situation as the members of the public got high returns on the shares that they purchased, while the company got extra capital to invest back into the business and therefore expand and grow their market share. However, the market crashed in 2006 which has been credited to large investments made by Saudi nationals into the market. Over $ 480 billion was lost in the 2006 market crash (Al- Omran, 2014). However since then, the Capital Markets Authority in the country has been working tirelessly to ensure that no such events are repeated through strict regulation and requirements for companies before they can issue IPO’s. Therefore, most of the companies in the country have to consult financial and legal experts before they can launch their companies through an IPO. There are still some hitches that would be encountered since the regulation process takes time especially when the company has to deal with as many products as the Saudi Arabian economy has to deal with (Martin, 2014).

Saudi Arabian companies can expect even better and higher success after the capital markets Authority in the country announced on September 1st 2014 that it would be allowing foreign direct investments to be made from the year 2015. So far, the country’s share index has been placed in position 6 as the best performer in the world of financial markets so far into the year 2014 (Martin, 2014). This positive performance by the Saudi Arabian financial markets can only get better with time. The ACWA Power International Company is also expected to launch an IPO and it has started the planning process to ensure a good performance of its venture. The ACWA Power has contracted the services of Saudi Fransi Capital so as to acquire sound advice on the venture. If the bid to launch an IPO by ACWA is successful, the company is expected to raise amounts of over $ 1 billion. The Saudi Arabian Airlines Company is said to have hired the services of Samba Financial Group (SAMBA) to offer financial advisory services on the company’s planned IPO in the near future. The Tadawul stock exchange has also been cited as planning on launching an IPO (Martin, 2014). 

Table 6.1: Case Companies: IPO Price & Current Share Price (SAR)

  Company listed IPO Price (SAR) Current Share Price (SAR)
1 Saudi Arabian Telecommunications Company 70 75
2 Cooperative Insurance Company 10 32.37
3 Almaraie Dairy products 512 75.56
4 Chemanol 10 18.31
5 Saudi Arabia Kayan Petrochemical Company 10 17.10
6 Etihad telecommunications Company 10 91.86

Current share prices (Tadawul, 2014)

All the companies that have been discussed in the case studies have a higher current price in comparison to the IPO price, except the Almaraie Dairy products company (see Table 6.1). Companies such as Etihad have had a remarkable growth post IPO price. The Saudi Telecommunications Company has not changed that much but the increase though slight has helped to maintain customers and other stakeholders’ confidence. The $ 530 billion Tadawul averages in over $ 2 billion daily which could be the reason why all the case study companies have managed to maintain high prices post IPO subscription. If Saudi Arabia was a developed company, the results might have been different. Currently, there are many businessmen in Saudi Arabia who directly or indirectly benefit from oil which has high prices. The biggest advantage with being an oil supplier as a country is that there is demand for the product throughout the year. With a ready product, there is a ready market and ready income. If the share index is anything to go by, the stock market is bound to grow even further. A lot of optimism can be seen in the trading volumes observed within the stock market, and the number of companies that have issued press statements expressing their interest in investing in the stock market. International financial companies have advised the Saudi Arabian government to ensure that the market is regulated to ensure that a crash is not witnessed. With an increase in the number of companies that want to, and will be listed on the stock market, the Capital market Authority might come up with more strict rules to ensure that investors are protected, and companies do not rush to have their shares listed with the necessary capabilities to sustain their operations thereafter.

6.3. Highly anticipated IPOs

The positive trend in prices of share for companies listed on the stock exchange has encouraged more number of companies to make efforts to get listed. The Saudi Arabia stock exchange is one such anticipated IPO late this year (2014) or early next year: 2015. This IPO is bound to be huge especially because it might be open to foreign investors after amendment of the law that restricts IPO subscriptions to Saudi nationals only (Martin, 2014). The National Commercial Bank also offers a promising investment for potential investors in the Saudi stock market.  Foreign investors are eager to get a piece of the world’s largest oil producer and the government is eager to develop non- oil related companies and businesses. This mutual need is bound to create a good balance in terms of return from investments made in relation to the stock market in Saudi Arabia; both in the short term, and in the long term. Some Saudi Arabian nationals have been skeptical about foreigners being allowed to invest in the stock market. These individuals feel that the foreigners would get to reap where they did not get to sow especially in former public companies that have gained from government spending such as tax breaks. Investment into such a company would confer the foreigners’ benefits that have been derived from the country’s rich oil fields and reserves (Khurshed, Paleari and Vismara, 2005).

6.4. Summary

All the case studies discussed have had a positive performance post IPO issuance, except Almarie dairy. The drop in prices has been attributed to natural courses such as entry of new and deadly livestock diseases that caused instability in the number of cattle that the company possessed. The recovery process took a toll on the company’s finances in addition to taking a lot of time. However, the positive trend in the performance of the other companies is quite encouraging. Saudi Arabia is set to be a good example that other nations around the world can copy in terms of issuing IPOs to its nationals. The National Commercial Bank is set to launch its IPO later in the year: which is highly anticipated. In addition, this offers a promising investment for potential investors in the Saudi stock market.  Foreign investors are eager to get a piece of the world’s largest oil producer and the government is eager to develop non- oil related companies and businesses.

Chapter 7

Conclusions and Recommendations

This study set out to examine the following main research questions: 1.what is the impact of IPO on the firm’s performance in Saudi Arabia? 2. How do the firms that went for IPOs perform in Saudi Arabian stock market (just before and after going public)? 3. Whether the impact of IPO on the firm’s performance is positive compared to that of the non-listed firm in Saudi Arabia?  Fort this the study employed six cases studies: 1: Saudi Arabia Telecom Company;2.Cooperative for Insurance 3.Almaraie Dairy products company; 4. Chemanol; 5.Saudi Kayan Petrochemical Company; and 6.Etihad Atheeb Telecom.

The study mainly employed qualitative research methodology (phenomenology) as it uses descriptive secondary data and subjective interpretations. The study examined the changes in prices of six Saudi Arabian companies selected as cases. The difference was based on case studies of the companies during the IPO subscription and a current Tadawul price.  The study found that overall most of the companies have had major improvements resulting in considerable profit margins for the respective companies. However, it has been a rough journey for some of the companies especially those that had their IPOS before the 2006 stock market crash; but reasonable strides have been made over that time period up to now (Coakley, Hadass and Wood, 2007; Al Omran, 2014).

Major Findings

On this research question related the impact of IPOs on firms’ performance in Saudi Arabia, the study found that different firms have different kinds of performances, before and post IPOs. Majority of the companies have a positive performance after having their companies listed. This performance can be attributed to the robust Saudi Arabian economy whereby most companies and individuals are eager to invest and have their money work for them. The Saudi Arabian government is also receptive in terms of allowing businesses to flourish which has contributed to most of the established countries growth (Coakley, Hadass and Wood, 2007).

Some firms have not had good share prices post their IPO. Such scenarios may be attributed to over valuing of shares which has to be rectified once the shares have been issued after the whole IPO subscription process. The Saudi Arabian stock market is indeed different from other stock markets because all the case studies considered have had a positive performance past IPO issuance. One of the reasons must be the higher number of eager investors which is evidenced by the oversubscription of all the considered IPO case studies. Oil and oil products in the country also provide a good environment for doing business since it is a commodity that has ready demand not just in the local market, but also in the international market. Oil is a big contributor to the positive and consistent growth of the country’s economy and it has assisted the country attain and retain a competitive edge when compared to other countries in the region, and internationally. It might be many years before the Saudi stock market companies have a negative performance post IPO subscriptions. By that time, the market might have been saturated by companies in similar industries, and oil reserves might have reduced. Only one company in the dairy products industry has had a negative performance which is reflected by a dramatic decrease in the share price in comparison to the IPO share price. 

The study had also sought to find out whether the performances of firms that are listed on the Saudi Arabia stock market have a positive performance in comparison to non-listed companies.  Listed firms seem to have a positive performance in comparison to non-listed companies. This can be attributed to the better and higher capital availability for listed firms in comparison to non-listed firms (Khurshed, Paleari and Vismara, 2005). Based on the past performance of the country’s economy, a high performance of the listed companies is expected in comparison to non-listed companies.  Listed firms also gain better exposure which allows them to attract more qualified, talented and experienced manpower. The human resources of an organization have a big impact on how well a company does in terms of performance especially when benchmarked against similar companies in the industry (Kinyua, Yanumba, Gathaiya and Kithiku, 2013).

Of the Saudi Arabia firms that have listed their companies on the stock market, Tadawul have been able to maintain or increase their share prices after the IPOs issuance. However, the process is not always rosy; most of the companies usually experience low share prices a few months after the IPOs. Firms should ensure that they have a ready budget for the funds that they acquire through the IPO. The management and employees should also be readied for the transition and informed of the expected changes that are bound to happen with the advent of going public. The agency costs should always be factored in so that not just the extra available capital is accounted for, but also the extra costs. The accounting department should also be retrained on the new and more transparent way of reporting since the shareholders have a right to know how their funds are being utilized (Al-Omran, 2014). However, being listed on the Tadawul seems like an inevitable stage for successful private companies in Saudi Arabia. When starting out, personal contributions, funds from banks and venture capitalists are a good source of capital. However, with the growth and expansion of a company, more funds are needed especially when a company’s products and services are in demand and the supply cannot be met.

Going public is also a good transition in terms of increasing responsibility and accountability among the management and employees of the organization (Khurshed, Paleari and Vismara, 2005: Martin, 2014). Managers should use issuance of IPOs as a way of putting their management skills into good use. Managers can use modern management methods such a Management BY Objectives (MBO) to ensure that the employees are aware of what is expected of them to the last detail. Employees that are aware of what is expected of them in the organization are more productive in comparison to those that have ambiguous goals and objectives. More interaction between the management and employees also seeks to ensure that the goals of the employees are aligned to those of the organization (Arabiya, Flanagan and Mustafa, 2013).

Good risk management skills, coupled with thoroughly researched market trends and accurate market forecasting depending on past records and market changes are necessary tools if a company is to make profits from the capital that they gain from an IPO. The age of the company also seems to have an effect on the performance of a company after IPOs. Companies in different industries that have been in the market for long have higher chances of performing well in comparison to companies that have not been in the market for long. People tend to have a better perception of older companies in comparison to newer companies (Kinyua, Yanumba, Gathaiya and Kithiku, 2013). This could be because there is more information regarding the company’s performance which individuals can use to gauge the company’s future performance. An older company is also more likely to be managed by professionals that have been in their respective industries for a longer period of time in comparison to newer companies. New companies that have experienced individuals from the industry have an advantage over their competitors. 

Limitations of the study and data

One of the limitations of the study is getting important information on stock markets from different companies. Most companies do not want to readily dish out information about their finances and performance to the members of the public. Naturally, they might feel that these are competitor efforts to try and outperform them in the competitive business that they operate on in the industry. However, there is a legal requirement that all listed companies should place their stock market related information available to the members of the public.

Some of the companies provide information that is too complex for the layman to understand and figures that one would have to breakdown through calculations so as to get the true position and accurate financials of the company.


Firms that want to be listed on the stock market should conduct thorough research as to what they stand to gain before going public (Kinyua, Yanumba, Gathaiya and Kithiku, 2013). All the details should be accounted for before the IPO so that time is saved and the money gained from the exercise is put into the proper and intended use.

All companies that intend to list their companies in the Saudi local stock market should have clear reasons as to why they would like to participate in an IPO. There should be a clear, well thought out and planned means through which the company would make use of the money with specified timelines. Only then, can the money from the IPO be properly utilized to make profits for the shareholders and other company stakeholders (Zattoni and Judge, 2012).

Firms that intend on having an IPO should seek the services of an experienced financial services provider and underwriter so that they get the best advice on how they should go about the exercise. Financial services companies usually advice companies on when IPOs can be launched based on current market conditions (Kim, Kitsabunnarat and Nofsinger, 2004). Even if a company had made prior preparations to launch but the market conditions are not favorable for an IPO, companies are usually advised to postpone such exercises. If a company has a clear objective on what they want to achieve before they IPO, they are most likely to benefit from the IPO in a great way.

Several factors which the firm has no control over should however be put into consideration such as the state of the economy,  the expected growth of the economy, the availability of foreign investors and whether the law allows them to invest in an IPO (Arabiya, Flanagan and Mustafa, 2013). A company that is able to attract and get the funds of an international company with good repute to invest in an IPO is bound to get good prices for its shares even after the IPO. Although indirect, the rate of unemployment and balance of trade of Saudi Arabia to other countries would also have an effect on a company’s IPO performance before and after the listing (Al-Barrak, 2005). For firms that chose underwriters to handle their IPOs, they should ensure that all the necessary details of the contract are properly handled. The firm that is issuing the IPO should also discuss with the underwriter all the details of the IPO such as the under pricing. Some clients might decide to seek legal redress because of under pricing issues especially if they have invested a lot of money on the IPO, and they fear that they might lose out on a large percentage of the funds. Firms can also opt to handle the IPO by themselves especially if they are based in the financial services sector and are aware of how to handle the IPO, and other challenges that might arise as a result of the IPO.

In the near future, foreign firms will be allowed to trade in the Saudi stock market, which will increase foreign direct investments, and contribute to a better balance of trade in favor of Saudi Arabia. With the expected listing of firms such as the National Commercial Bank and Tadawul, the future of the country is bright. The government will succeed in its venture of reducing over reliance on oil. The firms in the country can also diversify their operations to regional and international levels with the capital that is acquired. With the oversubscription of all the IPOs that have been issued, there is no doubt that even other companies that pursue listing in the Tadawul will achieve similar access in the long run (Arabiya, Flanagan and Mustafa, 2013).

In order to gain even more positive effects of listed companies on the Tadawul, the government should collaborate with higher institutions of learning in the country and ask businessmen to form groups through which they can be taught about the stock market. This will empower individuals to make investments in the stock market based on the highly profitable companies that they can invest in, or the companies that they possess most knowledge about (Martin, 2014).

Recommendations for further research

Based on the experience of undertaking this study, the following aspects are recommended for future research.

1.      The impact of Saudi Arabia’s stock market on Middle Eastern nations.

2.      The comparison of the performance of IPO’s in Saudi Arabia to that of IPOs in Europe.

Furthermore, in the future, the research on performance of IPOs and the progress of companies could be undertaken after a specific time period, that is, a long term perspective (such as ten to fifteen years after IPO issuance).


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