Acquisition Activity and IPO Underpricing

Financial Management, Vol. 39, Winter, 2010

48 Pages Posted: 6 Sep 2006 Last revised: 14 May 2014

Thomas Jason Boulton

Miami University

Scott Smart

Indiana University - Kelley School of Business - Department of Finance

Chad J. Zutter

University of Pittsburgh - Finance Group

Date Written: September 5, 2006

Abstract

We propose an “M&A activity” hypothesis as a partial explanation for IPO underpricing. When going public during active corporate control markets, managers may take actions intended to safeguard their control. In support of this conjecture, we find that pre-IPO M&A activity directly explains IPO underpricing. We also find that underpricing and ownership dispersion are positively correlated; as are ownership dispersion and the probability of remaining independent. Considering the possibility that some managers take their firms public for the purpose of being acquired, our findings indicate that the positive link between M&A activity and underpricing is not robust for firms that are subjectively viewed as likely targets.

Keywords: Underpricing, Initial public offerings, Merger and acquisitions, Corporate control, Governance

JEL Classification: G24, G30, G32, G34

Suggested Citation

Boulton, Thomas Jason and Smart, Scott and Zutter, Chad J., Acquisition Activity and IPO Underpricing (September 5, 2006). Financial Management, Vol. 39, Winter, 2010 . Available at SSRN: https://ssrn.com/abstract=928464

Thomas Jason Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Scott B. Smart

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Kelley School of Business
Bloomington, IN 47405
United States
812-855-3401 (Phone)
812-855-5875 (Fax)

Chad J. Zutter

University of Pittsburgh - Finance Group ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~czutter/

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