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Institutional investment in IPOs and post-IPO M&A activity

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  • Anderson, Christopher W.
  • Huang, Jian

Abstract

Secondary market stock returns of newly public firms with high levels of institutional investment exceed returns of firms with low institutional investment (Field and Lowry, 2009). We find that a material portion of this performance differential is attributable to institutional investment in firms that participate in mergers and acquisitions after their initial public offerings (IPOs). Specifically, institutions not only tend to avoid underperforming firms, on average, but also invest heavily in IPO firms that subsequently become M&A participants, especially well-performing bidders and targets. Superior returns among firms with high institutional ownership suggests the ability of institutional investors to identify and actively monitor newly public M&A participants.

Suggested Citation

  • Anderson, Christopher W. & Huang, Jian, 2017. "Institutional investment in IPOs and post-IPO M&A activity," Journal of Empirical Finance, Elsevier, vol. 41(C), pages 1-18.
    • Handle: RePEc:eee:empfin:v:41:y:2017:i:c:p:1-18
    DOI: 10.1016/j.jempfin.2016.12.003
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    2. Hsu-Huei Huang & Chin-Yin Chan, 2018. "Firms’ performance following the initial resignation of independent directors: evidence from Taiwan," Asia Pacific Business Review, Taylor & Francis Journals, vol. 24(5), pages 714-729, October.
    3. repec:mth:ijafr8:v:9:y:2019:i:1:p:135-151 is not listed on IDEAS
    4. Fu, Xudong & Tang, Tian & Yan, Xinyan, 2019. "Why do institutions like corporate social responsibility investments? evidence from horizon heterogeneity," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 44-63.
    5. Tiziana La Rocca, 2021. "Do prestigious underwriters shape IPO pricing? A meta-analytic review," Review of Managerial Science, Springer, vol. 15(3), pages 573-609, April.
    6. Giudici, Giancarlo & Bonaventura, Matteo, 2018. "The impact of M&A strategies on the operating performance and investments of European IPO firms," Journal of Economics and Business, Elsevier, vol. 95(C), pages 59-74.

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    More about this item

    Keywords

    Initial public offering (IPO); Institutional investors; Mergers and acquisitions (M&A);
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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