Abstract

http://ssrn.com/abstract=1362023
 
 

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Market Timing and Exit Choices: IPO v. Acquisition


Eric R. Ball


Oracle Corporation; Claremont Graduate University Drucker-Ito School of Management

Hsin-Hui Chiu


California State University, Northridge

Richard L. Smith


University of California, Riverside - Anderson Graduate School of Management

August 13, 2009


Abstract:     
Our results shed new light on interpretations of statistical evidence of market timing in prior research on IPO timing and exit choice. We examine IPO and acquisition waves and exit choices for 7082 venture-backed private companies over the 29-year period from 1978 through 2006. Consistent with other literature, we hypothesize that levels of IPO and acquisition activity and the choice between IPO and acquisition may be affected by market timing or by pseudo market timing that reflects variations in (i) information asymmetry, (ii) capital demand, and (iii) the relative cost of the alternatives. Based on any of several testing criteria and using either the full sample, or sector-specific subsamples, we find evidence of pseudo market timing. IPOs are selected during periods when market-wide demand for growth capital is high, adverse selection costs are low, the value of protecting private information is low, and market values have been rising. We find no consistent support for the market timing hypothesis, that issuers are more likely to select IPOs during periods when investors are over-optimistic such that subsequent market returns are negative, negatively related to IPO activity, or lower than market returns after exits by acquisition.

Number of Pages in PDF File: 40

Keywords: IPO, acquisition, exit choice, market timing, pseudo market timing, venture capital

JEL Classification: G14, G24, G32, G34

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Date posted: March 22, 2009 ; Last revised: September 2, 2009

Suggested Citation

Ball, Eric R. and Chiu, Hsin-Hui and Smith, Richard L., Market Timing and Exit Choices: IPO v. Acquisition (August 13, 2009). Available at SSRN: http://ssrn.com/abstract=1362023 or http://dx.doi.org/10.2139/ssrn.1362023

Contact Information

Eric R. Ball
Oracle Corporation ( email )
500 Oracle Parkway
Redwood Shores, CA 94065
United States
650 506 2729 (Phone)
Claremont Graduate University Drucker-Ito School of Management ( email )
The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States
Hsin-Hui Chiu (Contact Author)
California State University, Northridge ( email )
18111 Nordoff Street
Northridge, CA 91330
United States
Richard L. Smith
University of California, Riverside - Anderson Graduate School of Management ( email )
Riverside, CA 92521
United States
951-827-3554 (Phone)
HOME PAGE: http://www.agsm.ucr.edu/
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