Financial Management, Forthcoming
Posted: 23 Jul 2010 Last revised: 28 Jul 2010
Date Written: July 23, 2010
In this paper, we 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 IPOs facilitate acquisitions in a number of ways. Newly public firms benefit from the cash raised in the IPO, from subsequent access to public financing, and from ability to pay with publicly traded stock for acquisitions. IPO firms also benefit by obtaining market feedback and by taking advantage of high post-IPO stock values in making stock-based acquisitions at favorable terms.
Keywords: IPO, Merger, Acquisition, Market Feedback
JEL Classification: G32, G34
Suggested Citation: Suggested Citation