{"title":"Initial public offering over-issuance and a firm's acquisition behavior: Evidence from China","authors":"Nancy Huyghebaert, Ting Liu, Lihong Wang","doi":"10.1111/irfi.70001","DOIUrl":null,"url":null,"abstract":"<p>We analyze the relation between initial public offering (IPO) over-issuance and a firm's subsequent acquisition decisions. We find that newly listed firms are more likely to engage in merge & acquisitions (M&As) and initiate more and larger-sized M&As after raising more excess cash in their IPO. Additionally, this IPO over-issuance is negatively associated with the newly listed firm's post-acquisition stock performance. Moreover, Type I (principal-agent) and Type II (principal-principal) agency problems explain those relations. The negative relation between IPO over-issuance and stock performance is exacerbated for companies that have made large and industry-diversifying M&As. Further analyses reveal that acquirers who raised more excess cash in their IPO prefer to pay for their M&As entirely in cash.</p>","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":"25 1","pages":""},"PeriodicalIF":1.8000,"publicationDate":"2025-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Finance","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/irfi.70001","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We analyze the relation between initial public offering (IPO) over-issuance and a firm's subsequent acquisition decisions. We find that newly listed firms are more likely to engage in merge & acquisitions (M&As) and initiate more and larger-sized M&As after raising more excess cash in their IPO. Additionally, this IPO over-issuance is negatively associated with the newly listed firm's post-acquisition stock performance. Moreover, Type I (principal-agent) and Type II (principal-principal) agency problems explain those relations. The negative relation between IPO over-issuance and stock performance is exacerbated for companies that have made large and industry-diversifying M&As. Further analyses reveal that acquirers who raised more excess cash in their IPO prefer to pay for their M&As entirely in cash.
期刊介绍：
The International Review of Finance (IRF) publishes high-quality research on all aspects of financial economics, including traditional areas such as asset pricing, corporate finance, market microstructure, financial intermediation and regulation, financial econometrics, financial engineering and risk management, as well as new areas such as markets and institutions of emerging market economies, especially those in the Asia-Pacific region. In addition, the Letters Section in IRF is a premium outlet of letter-length research in all fields of finance. The length of the articles in the Letters Section is limited to a maximum of eight journal pages.
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