The Desire to Acquire and IPO Long-Run Underperformance
By James C. Brau, Robert B.
Couch, Ninon K. Sutton, Bill Megginson, Todd Mitton and Jay Ritter
We analyze a sample of 4,795 IPOs that went public between 1985 and 2003 to determine the impact of acquisition activity on long-run stock performance.
After controlling for relevant factors, we find that IPOs that acquire within a year of going public significantly underperform for three-year holding periods following the first year, whereas non-acquiring IPOs do not significantly underperform over this time frame.
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In addition, firms that wait for more than a year after the IPO to become an acquirer do not underperform. Our event- and calendar-time results suggest that the acquisition activity of newly public firms plays a previously unrecognized role in the long-run underperformance of IPOs
Topics: Initial Public Offering (IPO, Long-Run Stock Performance, Merger and Acquisition (M&A
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