Beyond the Listing: assessing the real impact of IPO on SMEs’ performance from the Indian market perspective

Abstract This study examines the long-term effect of Initial Public Offerings (IPOs) on the financial and market performance of Small and Medium Enterprises (SMEs) in India. SMEs play a critical role in global economic development, accounting for nearly 90% of businesses and contributing substantially to employment and national income, particularly in emerging economies. Despite their importance, SMEs often face significant financing constraints due to limited access to external capital. To address these challenges, many Indian SMEs increasingly use SME-focused stock exchanges, such as BSE SME and NSE Emerge, to raise capital through IPOs. However, empirical evidence on the long-term outcomes of IPO financing for SMEs remains inconclusive, particularly in emerging market contexts. Drawing on signaling theory, agency theory, and market timing theory, this study investigates whether IPO issuance contributes to sustainable improvements in SMEs’ long-term financial and market performance. Using an unbalanced panel dataset of 198 SMEs listed on the BSE SME from 2017 to 2023, the study employs a fixed-effects panel regression to examine the relationship between IPO financing and firm performance. Additionally, the study evaluates the moderating impact of the COVID-19 pandemic on post-IPO performance outcomes. The findings reveal that IPO financing exerts a significant positive effect on SMEs’ long-term market performance, indicating that public listing enhances investor confidence and market valuation. The results also provide evidence of improved long-term financial performance, contrary to several prior studies that reported post-IPO financial underperformance among SMEs. Furthermore, the COVID-19 pandemic produced mixed effects, improving certain market indicators while adversely affecting financial performance, thereby highlighting SMEs’ vulnerability to external economic shocks. The study contributes to the growing literature on SME financing and IPO performance in emerging economies by providing evidence from the Indian SME market. Practically, the findings suggest that IPO financing can serve as a viable long-term growth strategy for SMEs when supported by effective financial management and crisis-response capabilities.