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Determinants of IPO-firms’ merger appetite

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  • Marco Bade

    (Berlin Institute of Technology, Chair of Finance and Investment)

Abstract

This paper proposes a model with mutual feedback effects to investigate IPO-firms’ information-related objectives to engage in post-IPO mergers in an economy with informational synergies. The model demonstrates that the probability of a post-IPO merger (merger appetite) positively affects the information production by a speculator in the financial market. This has two opposite effects on the IPO-firm’s value. (1) It exacerbates after-market illiquidity and thus increases underpricing in the primary market. (2) Simultaneously, it enhances expected net present value (NPV) of investment opportunities via two information-related channels: direct channel due to informational synergies among firms, indirect channel via the speculator’s information production. The model predicts a tradeoff between underpricing and expected NPV of investment opportunities determining the merger appetite of IPO-firms. In addition, the model endogenizes the merger price the IPO-firm expects to pay to shareholders of a private firm. It is demonstrated that the described tradeoff and the mutual feedback effects also determine the expected merger price.

Suggested Citation

  • Marco Bade, 2020. "Determinants of IPO-firms’ merger appetite," Review of Managerial Science, Springer, vol. 14(1), pages 193-219, February.
    • Handle: RePEc:spr:rvmgts:v:14:y:2020:i:1:d:10.1007_s11846-018-0291-2
    DOI: 10.1007/s11846-018-0291-2
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    More about this item

    Keywords

    M&A; Going public; Underpricing; Information production; Feedback effects; Merger price;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • 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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