The Desire to Acquire and IPO Long-Run Underperformance
31 Pages Posted: 21 Sep 2008 Last revised: 25 Jun 2010
Date Written: January 11, 2010
Abstract
We analyze a sample of 4,795 IPOs that went public between 1985 and 2003 to determine the impact of acquisition activity on long-run stock performance. After controlling for relevant factors, we find that IPOs that acquire within a year of going public significantly underperform for three-year holding periods following the first year, whereas non-acquiring IPOs do not significantly underperform over this time frame. In addition, firms that wait for more than a year after the IPO to become an acquirer do not underperform. Our event- and calendar-time results suggest that the acquisition activity of newly public firms plays an important and previously unrecognized role in the long-run underperformance of IPOs.
Keywords: Initial Public Offering (IPO), Long-Run Stock Performance, Merger and Acquisition (M&A)
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