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The stock market evaluation of IPO-firm takeovers

  • Braun, Thorsten V.
  • Lehmann, Erik E.
  • Schwerdtfeger, Manuel T.

We conduct an event study to assess the stock market evaluation of public takeover announcements. Unlike the majority of previous research, we specifically focus on acquisitions targeted at newly public IPO-firms and show that the stock market positively evaluates these M&As as R&D. However, bidders' abnormal announcement returns are significantly lower for takeovers directed at targets with critical intangible assets and innovative capabilities inalienably bound to their initial owners than for those that have internally accumulated respective resources and capabilities. We explain these findings with the acquirer's post-acquisition dependence on continued access to the IPO-firm founders' target-specific human capital. Our results contribute to literature in that they show that the stock market perceives these potential impediments to successful exploitation of acquired strategic resources and thus identify a potential cause for heretofore mostly inconsistent evidence on bidder abnormal returns in corporate takeovers found in previous research.

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Paper provided by University of Augsburg, Chair of Management and Organization in its series UO Working Papers with number 01-11.

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Date of creation: 2011
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Handle: RePEc:zbw:auguow:0111
Contact details of provider: Web page: http://www.wiwi.uni-augsburg.de/bwl/lehmann/

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