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Can Investors Anticipate Post-IPO Mergers and Acquisitions?

61 Pages Posted: 22 Feb 2017 Last revised: 18 Sep 2017

Christopher W. Anderson

University of Kansas - School of Business

Jian Huang

Towson University - College of Business and Economics

Gokhan Torna

SUNY at Stony Brook University - College of Business

Date Written: February 1, 2017

Abstract

Given the frequency and its important value implication of post-IPO M&A activity, we investigate empirically whether investors can utilize information based on IPO deal structure to predict merger and acquisition activity among newly public firms. Consistent with the hypothesis that some firms conduct IPOs to facilitate future M&A activity, we find that whether a newly public firm subsequently becomes a bidder or target is predicted by aspects of IPO deal structure. These characteristics include underwriter quality, promotional activity, pricing, proceeds, ownership structure, and issuance activity suggestive of market timing. Investors appear to rely on these observable aspects of a firm’s going public process to anticipate the implications of M&A activity for security valuation. Specifically, when newly public firms with IPO deal structures predictive of acquisition activity announce an acquisition their stock returns are indistinguishable from zero. In contrast, abnormal returns to acquisition announcements by unlikely or surprise bidders are positive on average. These results suggest that the going public process has important implications for future M&A activity and valuation.

Keywords: Initial public offerings (IPOs), mergers and acquisitions (M&A), deal structure, merger anticipation

JEL Classification: G14, G24, G32, G34

Suggested Citation

Anderson, Christopher W. and Huang, Jian and Torna, Gokhan, Can Investors Anticipate Post-IPO Mergers and Acquisitions? (February 1, 2017). Journal of Corporate Finance, Vol. 45, 2017. Available at SSRN: https://ssrn.com/abstract=2922046

Christopher W. Anderson (Contact Author)

University of Kansas - School of Business ( email )

1300 Sunnyside Ave
Lawrence, KS 66045
United States
785-864-7340 (Phone)
785-864-5328 (Fax)

HOME PAGE: http://www.business.ku.edu/gen/bschool_generated_pages/Anderson_Christopher_p1587.html

Jian Huang

Towson University - College of Business and Economics ( email )

8000 York Road
Towson, MD 21252
United States
410-704-3547 (Phone)
410-704-3454 (Fax)

Gokhan Torna

SUNY at Stony Brook University - College of Business ( email )

250 Harriman Hall
Stony Brook, NY 11777
United States
631-632-5304 (Phone)
631-632-9412 (Fax)

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