Decoding IPO dynamics: the changing role of financial and non-financial metrics

Purpose The purpose of the study is to analyze how financial and non-financial company characteristics influence stock performance after an Initial Public Offering (IPO) in the Saudi market. The main objective of the research is to examine the effect of financial and non-financial indicators on the stock price on IPO and after the passage of time. Design/methodology/approach This study uses a methodology based on cross-sectional data analysis to evaluate the relevance of financial and non-financial metrics in stock price movements in the Saudi stock market. The impact of financial and non-financial metrics on the share price was tested through the R2 correlation values in the first period of listing and after three quarters. It uses data from 2021 to the end of the first quarter of 2022 and the final sample included 27 companies with a total of 216 observations. Findings The research finds that both financial characteristics (such as profitability and size) and non-financial factors (like ownership type and audit quality) significantly affect stock performance after IPOs. Companies that are larger and more profitable exhibit higher value relevance in the stock market. Research limitations/implications The study should be strengthened by a methodology combining questionnaires and interviews to better understand the dynamics of IPOs. In addition, it is difficult to expect the market efficiency hypothesis to be achieved under the subscription mechanism for initial public offerings in the Saudi market, which relies on institutions submitting their applications without cash coverage. Practical implications Policymakers should incentivize Public Investment Fund participation to stabilize markets, while companies must enhance investor relations to reduce post-IPO volatility. Managers should optimize ROA, profit margins, and P/E ratios while adopting diversification and contingency plans. High-quality audits further boost investor confidence. Originality/value This study contributes to the literature by providing empirical evidence on the role of company characteristics in shaping stock performance post-IPO in an emerging market context, specifically Saudi Arabia. The findings offer insights into the factors influencing stock price behavior in rapidly growing financial markets.