The effect of going public on profitability of financial firms listed on the Ghana Stock Exchange

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Going public is one of the most common forms of equity financing used by firms to raise funds in order to finance their current and future operations. As part of this, firms become listed on a Stock Exchange so their shares become publicly traded. Being a publicly listed company comes with several benefits and obligations. In as much as firms are prone to some cost and obligations after listing, the bottom line for any firm that goes public is to obtain the necessary capital and recognition to make them more profitable. This study seeks to investigate whether there is a relationship between listing on a Stock Exchange like that of Ghana`s and profitability. It focuses mainly on the financial stocks listed on the Ghana Stock Exchange and examines pre and post listing performance of these financial firms. It uses panel data regression analysis to deduce the relationship between Going Public and profitability. It also looks at factors that affect profitability of firms after Going Public in the Ghanaian context. The paper concludes that there is positive relationship between going public and profitability. However, this relationship is not statistically significant. This means firms do not necessarily become profitable after going public. Nevertheless, there was a statistically significant positive relationship between assets of firms and profit margins. Recommendations made were managing and increasing asset base of firms to make them profitable and improving standards and regulations in various industries to enhance performance of firms.
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2014
Ghana, Ghana Stock Exchange, profitability, financial stocks, window dressing theory, adverse selection cost, profit margin