51 Pages Posted: 15 Jun 2008 Last revised: 19 Sep 2009
Date Written: July 28, 2009
In this paper we explore and find support for IPOs motivated by subsequent acquisition activity. Over a third of newly public firms enter the market for corporate control as acquirers within three years of the IPO. We find that the role of an IPO in facilitating subsequent acquisitions is twofold. Newly-public firms benefit from the cash funding provided by the IPO, subsequent access to public financing and publicly traded stock, which facilitates stock-based acquisitions. IPO firms also benefit from obtaining public valuations. We find that these firms take advantage of high-post IPO stock values in making stock-based acquisitions at favorable terms and obtain market feedback.
Keywords: IPO, merger, market timing, market feedback
JEL Classification: G32, G34
Suggested Citation: Suggested Citation