Intention to Acquire and M&As: Evidence from European IPOs

37 Pages Posted: 3 Jan 2019

See all articles by Andreas Charitou

Andreas Charitou

University of Cyprus

Irene Karamanou

University of Cyprus - Department of Public and Business Administration

George Loizides

University of Cyprus, Faculty of Economics and Management, Department of Accounting and Finance

Date Written: December 17, 2018

Abstract

In this paper we examine the disclosure on the IPO prospectus that refers to the firm’s intention to pursue an active acquisition strategy as one of the reasons for going public (disclosers). Based on research showing that properly evaluated M&As are more successful, we examine whether the disclosure of the intention to engage in future acquisitions captures the firm’s more diligent choice of acquiring target firms and the resulting increased synergies between the two companies (the signaling hypothesis). Our results are consistent with this conjecture. Using a dataset of European IPOs during the period 2002-2017, first we document that disclosers are more likely to engage in future M&A activity than non-disclosers supporting the notion that such disclosures are credible. Secondly, we document more positive market reaction around the announcement of the acquisition for disclosers than for non-disclosers. We examine the robustness of these results by controlling for shareholder rights and the bidders’ legal origin. As expected, firms in countries with better antidirector rights and stronger legal environment accentuate this result. Finally, results show that the long-run performance of the combined entity is more positive than that of non-disclosers up to a three year period following the merger. Interestingly, as the acquisition moves further away from the IPO date the long-run performance of the firm is reduced but remains reliably more positive than the post-acquisition performance of non-disclosers. Thus, our results suggest that the voluntary disclosure of the intention to acquire before the acquirer goes public can serve as a positive signal for the success of the acquisition.

Keywords: European IPOs, M&As, Voluntary Disclosure, Informativeness

JEL Classification: G34, G14

Suggested Citation

Charitou, Andreas and Karamanou, Irene and Loizides, George, Intention to Acquire and M&As: Evidence from European IPOs (December 17, 2018). Available at SSRN: https://ssrn.com/abstract=3302684 or http://dx.doi.org/10.2139/ssrn.3302684

Andreas Charitou (Contact Author)

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 2 893624 (Phone)
+357 2 895030 (Fax)

Irene Karamanou

University of Cyprus - Department of Public and Business Administration ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
CYPRUS
+357 2 892471 (Phone)
+357 2 892460 (Fax)

George Loizides

University of Cyprus, Faculty of Economics and Management, Department of Accounting and Finance

Cyprus

Register to save articles to
your library

Register

Paper statistics

Downloads
19
Abstract Views
107
PlumX Metrics