Reverse Takeover and Firm Survivability

28 Pages Posted: 13 Jul 2012

See all articles by Khishigjargal Jambal

Khishigjargal Jambal

Rochester Institute of Technology

Bong-Soo Lee

Florida State University

Sang Whi Lee

Kyung-Hee University - School of International Trade and Business

Kwangwoo Park

KAIST (Korea Advanced Institute of Science and Technology) - College of Business

Date Written: July 1, 2012

Abstract

Manuscript Type: Empirical

Research Question/Issue: This paper investigates how firm financial characteristics and governance characteristics affect reverse takeovers’ survival.

Research Findings/Insights: Using a sample of reverse takeovers that took place during the 2000–2009 period in the U.S., we find that firms with reverse takeover are more likely to survive when they have higher interest coverage ratio of the shell, while its profitability (return on equity) is lower just before the reverse takeover and the new firm is relatively smaller than the public shell. In addition, firms with new CEOs are more likely to survive than firms without CEO replacement, and this effect is pronounced when the shell has lower liquidity.

Theoretical/Academic Implications: Our findings suggest that the survivability of reverse takeovers relies both on the financial conditions of the merging firms and on their presumed value-enhancing governance characteristics.

Practitioner/Policy Implications: Conventionally, firms try to improve the financial conditions of the merging firms to survive in the reverse takeover. Our empirical results however stress that firms should also practice good corporate governance in order to be successful in reverse takeover.

Keywords: Reverse Takeover, Corporate Governance, Firm Survivability, Going Public, Going Private

JEL Classification: G21, G31, G34

Suggested Citation

Jambal, Khishigjargal and Lee, Bong-Soo and Lee, Sang Whi and Park, Kwangwoo, Reverse Takeover and Firm Survivability (July 1, 2012). KAIST Business School Working Paper Series No. 2012-006. Available at SSRN: https://ssrn.com/abstract=2104974 or http://dx.doi.org/10.2139/ssrn.2104974

Khishigjargal Jambal

Rochester Institute of Technology ( email )

Rochester, NY 14623
United States

Bong-Soo Lee

Florida State University ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-4713 (Phone)

HOME PAGE: http://www.cob.fsu.edu/fin/display_faculty_info.cfm?pID=401

Sang Whi Lee

Kyung-Hee University - School of International Trade and Business ( email )

#1 Hoeegi-dong Donedamun-Gu,
Seoul
Korea, Republic of (South Korea)

Kwangwoo Park (Contact Author)

KAIST (Korea Advanced Institute of Science and Technology) - College of Business ( email )

85 Hoegiro
Seoul 02455
Korea, Republic of (South Korea)
82-2-958-3540 (Phone)
82-2-958-3604 (Fax)

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