IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

What all-cash companies tell us about IPOs and acquisitions

Listed author(s):
  • Rodrigues, Usha
  • Stegemoller, Mike
Registered author(s):

    We examine the IPOs of and acquisitions made by special purpose acquisition corporations (SPACs). This unique sample provides a perspective on these two corporate events unencumbered by much of the typical confounding information. We find the IPO gross spreads of these simple firms similar to the spreads accompanying the IPOs of much more complex firms. This result is consistent with illogically sticky spreads. We find acquirer announcement returns roughly triple that of typical acquisitions. Since these returns disproportionately reflect the valuation split between acquirer and target, they suggest that the lower returns of typical acquisitions stem from overestimating synergies and/or new information regarding the bidder.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119914000765
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 29 (2014)
    Issue (Month): C ()
    Pages: 111-121

    as
    in new window

    Handle: RePEc:eee:corfin:v:29:y:2014:i:c:p:111-121
    DOI: 10.1016/j.jcorpfin.2014.07.003
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Sara B. Moeller & Frederik P. Schlingemann & René M. Stulz, 2007. "How Do Diversity of Opinion and Information Asymmetry Affect Acquirer Returns?," Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 2047-2078, November.
    4. Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, vol. 55(3), pages 1105-1131, 06.
    5. Lee, Inmoo & et al, 1996. "The Costs of Raising Capital," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(1), pages 59-74, Spring.
    6. Pekka Hietala & Steven N. Kaplan & David T. Robinson, 2003. "What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies," Financial Management, Financial Management Association, vol. 32(3), Fall.
    7. Mark Abrahamson & Tim Jenkinson & Howard Jones, 2011. "Why Don't U.S. Issuers Demand European Fees for IPOs?," Journal of Finance, American Finance Association, vol. 66(6), pages 2055-2082, December.
    8. Kathleen Weiss Hanley, 2010. "The Information Content of IPO Prospectuses," Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2821-2864, July.
    9. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-1067, September.
    10. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    11. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    12. Dongcheol Kim & Darius Palia & Anthony Saunders, 2010. "Are Initial Returns and Underwriting Spreads in Equity Issues Complements or Substitutes?," Financial Management, Financial Management Association International, vol. 39(4), pages 1403-1423, December.
    13. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    14. Robert Berger, 2008. "SPACs: An Alternative Wav to Access the Public Markets," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(3), pages 68-75.
    15. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    16. Liu, Xiaoding & Ritter, Jay R., 2011. "Local underwriter oligopolies and IPO underpricing," Journal of Financial Economics, Elsevier, vol. 102(3), pages 579-601.
    17. Shane A. Corwin & Paul Schultz, 2005. "The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 443-486, 02.
    18. Micah S. Officer & Annette B. Poulsen & Mike Stegemoller, 2009. "Target-firm information asymmetry and acquirer returns," Review of Finance, European Finance Association, vol. 13(3), pages 467-493.
    19. Saeyoung Chang, 1998. "Takeovers of Privately Held Targets, Methods of Payment, and Bidder Returns," Journal of Finance, American Finance Association, vol. 53(2), pages 773-784, 04.
    20. Gao, Xiaohui & Ritter, Jay R. & Zhu, Zhongyan, 2013. "Where Have All the IPOs Gone?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(06), pages 1663-1692, December.
    21. Hansen, Robert G, 1987. "A Theory for the Choice of Exchange Medium in Mergers and Acquisitions," The Journal of Business, University of Chicago Press, vol. 60(1), pages 75-95, January.
    22. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
    23. Pinkowitz, Lee & Sturgess, Jason & Williamson, Rohan, 2013. "Do cash stockpiles fuel cash acquisitions?," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 128-149.
    24. Jeffry Netter & Mike Stegemoller & M. Babajide Wintoki, 2011. "Implications of Data Screens on Merger and Acquisition Analysis: A Large Sample Study of Mergers and Acquisitions from 1992 to 2009," Review of Financial Studies, Society for Financial Studies, vol. 24(7), pages 2316-2357.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:29:y:2014:i:c:p:111-121. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.