A Theory of Merger-Driven IPOs

Details

Ressource 1Download: serval:BIB_6421D2A8D7A5.P001 (360.16 [Ko])
State: Public
Version: author
License: Not specified
It was possible to publish this article open access thanks to a Swiss National Licence with the publisher.
Serval ID
serval:BIB_6421D2A8D7A5
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
A Theory of Merger-Driven IPOs
Journal
Journal of Financial and Quantitative Analysis
Author(s)
Lyandres E., Zhdanov A., Hsieh J.
ISSN
0022-1090
Publication state
Published
Issued date
10/2011
Peer-reviewed
Oui
Volume
46
Number
5
Pages
1367–1405
Language
english
Abstract
We propose a model that links a firm’s decision to go public with its subsequent takeover strategy. A private bidder does not know a firm’s true valuation, which affects its gain from a potential takeover. Consequently, a private bidder pursues a suboptimal restructuring policy. An alternative route is to complete an initial public offering (IPO) first. An IPO reduces valuation uncertainty, leading to a more efficient acquisition strategy, therefore enhancing firm value. We calibrate the model using data on IPOs and mergers and acquisitions (M&As). The resulting comparative statics generate several novel qualitative and quantitative predictions, which complement the predictions of other theories linking IPOs and M&As. For example, the time it takes a newly public firm to attempt an acquisition of another firm is expected to increase in the degree of valuation uncertainty prior to the firm’s IPO and in the cost of going public, and it is expected to decrease in the valuation surprise realized at the time of the IPO. We find strong empirical support for the model’s predictions.
Web of science
Open Access
Yes
Create date
12/11/2010 13:14
Last modification date
01/10/2019 7:18
Usage data