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Going public to acquire? The acquisition motive in IPOs

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  • Celikyurt, Ugur
  • Sevilir, Merih
  • Shivdasani, Anil
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    Abstract

    Newly public firms make acquisitions at a torrid pace. Their large acquisition appetites reflect the concentration of initial public offerings (IPOs) in mergers and acquisitions-(M&A-) intensive industries, but acquisitions by IPO firms also outpace those by mature firms in the same industry. IPO firms' acquisition activity is fueled by the initial capital infusion at the IPO and through the creation of an acquisition currency used to raise capital for both cash- and stock-financed acquisitions along with debt issuance subsequent to the IPO. IPO firms play a bigger role in the M&A process by participating as acquirers than they do as takeover targets, and acquisitions are as important to their growth as research and development (R&D) and capital expenditures (CAPEX). The pattern of acquisitions following an IPO shapes the evolution of ownership structure of newly public firms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 96 (2010)
    Issue (Month): 3 (June)
    Pages: 345-363

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    Handle: RePEc:eee:jfinec:v:96:y:2010:i:3:p:345-363

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Initial public offerings Acquisitions Mergers Acquisition currency;

    References

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    Cited by:
    1. Jain, Bharat A. & Li, Joanne & Shao, Yingying, 2013. "Governance, product market competition and cash management in IPO firms," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2052-2068.
    2. Floros, Ioannis V. & Sapp, Travis R.A., 2011. "Shell games: On the value of shell companies," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 850-867, September.
    3. Field, Laura & Lowry, Michelle & Mkrtchyan, Anahit, 2013. "Are busy boards detrimental?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 63-82.
    4. Kaoru Hosono & Miho Takizawa & Kenji Uchimoto & Keishi Hachisuka, 2013. "The Funding through Capital Market and Firm Behavior - Decision-making on IPOs, SEOs and Bond Issues and the Post-funding Investments and R&D Activities," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(2), pages 315-364, March.
    5. Cornett, Marcia Millon & Fayman, Alex & Marcus, Alan J. & Tehranian, Hassan, 2011. "Dividends, maturity, and acquisitions: Evidence from a sample of bank IPOs," Review of Financial Economics, Elsevier, vol. 20(1), pages 11-21, January.
    6. Ang, James S. & Ҫolak, Gӧnül & Zhang, Tai-Wei, 2014. "Decoupling by clienteles and by time in the financial markets: The case of two-stage stock-financed mergers," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 360-375.
    7. Bernstein, Shai, 2012. "Does Going Public Affect Innovation?," Research Papers 2126, Stanford University, Graduate School of Business.
    8. Floros, Ioannis V. & Sapp, Travis R.A., 2012. "Why do firms issue private equity repeatedly? On the motives and information content of multiple PIPE offerings," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3469-3481.
    9. Alimov, Azizjon & Mikkelson, Wayne, 2012. "Does favorable investor sentiment lead to costly decisions to go public?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 519-540.
    10. De, Soumendra & Jindra, Jan, 2012. "Why newly listed firms become acquisition targets," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2616-2631.
    11. Liu, Jia & Lister, Roger & Pang, Dong, 2013. "Corporate evolution following initial public offerings in China: A life-course approach," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 1-20.

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