IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v36y2012i9p2616-2631.html
   My bibliography  Save this article

Why newly listed firms become acquisition targets

Author

Listed:
  • De, Soumendra
  • Jindra, Jan

Abstract

We study the operating, financial, and ownership structure characteristics of newly listed firms which become acquisition targets shortly after their initial public offerings. We examine whether such firms get acquired because of their successful performance or as an alternative to delisting. We find that firms, which do relatively well in terms of operating as well as stock performance and attract institutional investor interest, draw the attention of acquirers. Furthermore, we observe that investments made by newly listed target firms do not destroy shareholder value and have comparable profitability to investments made by newly listed firms which grow by acquisitions. Overall, firms acquired shortly after listing are on a growth trajectory similar to that of surviving firms.

Suggested Citation

  • De, Soumendra & Jindra, Jan, 2012. "Why newly listed firms become acquisition targets," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2616-2631.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2616-2631 DOI: 10.1016/j.jbankfin.2012.06.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426612001586
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-1366, September.
    2. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    3. Daniel J. Bradley & Bradford D. Jordan & Jay R. Ritter, 2008. "Analyst Behavior Following IPOs: The 'Bubble Period' Evidence," Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 101-133, January.
    4. Rau, P. Raghavendra & Stouraitis, Aris, 2011. "Patterns in the Timing of Corporate Event Waves," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(01), pages 209-246, March.
    5. Hsieh, Jim & Lyandres, Evgeny & Zhdanov, Alexei, 2011. "A Theory of Merger-Driven IPOs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(05), pages 1367-1405, November.
    6. Field, Laura Casares & Lowry, Michelle, 2009. "Institutional versus Individual Investment in IPOs: The Importance of Firm Fundamentals," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(03), pages 489-516, June.
    7. Luigi Zingales, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Oxford University Press, vol. 62(3), pages 425-448.
    8. Hamid Mehran & Stavros Peristiani, 2010. "Financial Visibility and the Decision to Go Private," Review of Financial Studies, Society for Financial Studies, pages 519-547.
    9. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1991. "A test of the free cash flow hypothesis*1: The case of bidder returns," Journal of Financial Economics, Elsevier, vol. 29(2), pages 315-335, October.
    10. Celikyurt, Ugur & Sevilir, Merih & Shivdasani, Anil, 2010. "Going public to acquire? The acquisition motive in IPOs," Journal of Financial Economics, Elsevier, vol. 96(3), pages 345-363, June.
    11. Richard B. Carter & Frederick H. Dark & Ajai K. Singh, 1998. "Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks," Journal of Finance, American Finance Association, vol. 53(1), pages 285-311, February.
    12. Servaes, Henri, 1991. " Tobin's Q and the Gains from Takeovers," Journal of Finance, American Finance Association, vol. 46(1), pages 409-419, March.
    13. 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, April.
    14. Sreedhar T. Bharath & Amy K. Dittmar, 2010. "Why Do Firms Use Private Equity to Opt Out of Public Markets?," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1771-1818.
    15. Armen Hovakimian & Irena Hutton, 2010. "Merger‐Motivated IPOs," Financial Management, Financial Management Association International, vol. 39(4), pages 1547-1573, December.
    16. Officer, Micah S., 2007. "The price of corporate liquidity: Acquisition discounts for unlisted targets," Journal of Financial Economics, Elsevier, vol. 83(3), pages 571-598, March.
    17. Faccio, Mara & McConnell, John J. & Stolin, David, 2006. "Returns to Acquirers of Listed and Unlisted Targets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(01), pages 197-220, March.
    18. James C. Brau & Bill Francis & Ninon Kohers, 2003. "The Choice of IPO versus Takeover: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 76(4), pages 583-612, October.
    19. 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.
    20. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
    21. Jean Helwege & Christo Pirinsky & René M. Stulz, 2007. "Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership," Journal of Finance, American Finance Association, vol. 62(3), pages 995-1028, June.
    22. Tsoukas, Serafeim, 2011. "Firm survival and financial development: Evidence from a panel of emerging Asian economies," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1736-1752, July.
    23. Todd C. Pulvino, 1998. "Do Asset Fire Sales Exist? An Empirical Investigation of Commercial Aircraft Transactions," Journal of Finance, American Finance Association, vol. 53(3), pages 939-978, June.
    24. Bharat A. Jain & Omesh Kini, 1999. "The Life Cycle of Initial Public Offering Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(9-10), pages 1281-1307.
    25. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    26. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    27. Ang, James & Mauck, Nathan, 2011. "Fire sale acquisitions: Myth vs. reality," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 532-543, March.
    28. 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.
    29. Helwege, Jean & Liang, Nellie, 2004. "Initial Public Offerings in Hot and Cold Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(03), pages 541-569, September.
    30. Asquith, Paul & Bruner, Robert F. & Mullins, David Jr., 1983. "The gains to bidding firms from merger," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 121-139, April.
    31. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    32. Hensler, Douglas A & Rutherford, Ronald C & Springer, Thomas M, 1997. "The Survival of Initial Public Offerings in the Aftermarket," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(1), pages 93-110, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eme:mfipps:mf-09-2016-0263 is not listed on IDEAS
    2. 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.
    3. Milos Vulanovic, 2017. "SPACs: post-merger survival," Managerial Finance, Emerald Group Publishing, vol. 43(6), pages 679-699, June.

    More about this item

    Keywords

    Mergers and acquisitions; Initial public offerings; Operating performance; Financial leverage; Financial liquidity; Institutional ownership;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2616-2631. 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). General contact details of provider: http://www.elsevier.com/locate/jbf .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.