The Reason For Declining In Operating Performance Of IPO Firms

Since china’s reform and opening-up policies were launched, with the rapid economic development of our country. As one of the important channels of financing for the IPO (Initial public offering, hereinafter referred to as "IPO"), has become the most important means to our country enterprise financing. But with the enlargement of the scale, the decline in operating performance after the IPO is common, namely "IPO effect", the phenomenon has attracted people’s attention and reflection. Through research and analysis of a large number of domestic and foreign scholars proved that the "IPO effect" is widespread around the world.After the implementation of approval system, In order to achieve the listed company tries earnings management behavior again to through the strict review is almost impossible to happen. Based on this many scholars proposed query to the earnings management hypothesis, they think this hypothesis cannot explain the business performance decline phenomenon after listed. Aimed at this phenomenon, this paper use the basic economic theory to explain.Inspection evidence shows that declining in performance of listed companies in China after IPO consistent with the profitability mean reversion hypothesis. The research conclusion can help investors know the the issuing high growth and high return on investment of companies before IPO rationally, carefully evaluatthe companies’ intrinsic value.To study the reason for declining in performance of listed companies in China after IPO, this paper selects 192 listed manufacturing enterprises as samples between 2007 and 2009. First of all, according to the financial statements model used for management we divide the return on equity (ROE) factors into the net profit margin on Sales, net operating assets turnover, and rate of leverage contribution, then using factor analysis method to analyze the main factors that led to the decrease of the ROE, and in the process of analysis found the disadvantages of factor analysis itself,and put forward two kinds of modification, the control variate method and the logarithmic method. it turned out to be that drop of net operating asset turnover is main reason to decrease performance of public companies, and decompose of net operating assets determine the phenomenon is caused by operational long-term assets change slowly. it turned out to be that drop of net operating asset turnover is main reason to decrease performance of public companies, which is coincident with results calculated via business investment rate of return diminishing marginal theory.Finally, according to the result of empirical study, we provides some suggestions for investors and researchers to invest and research the IPO, in order to reduce the associated risk and improve the quality of research.