Geographic Distance and Corporate Acquisitions: Signals from IPO Firms

This paper examines acquisitions of firms after they have undergone initial public offerings (IPOs). Combining insights from information economics with recent research on geographic distance in various market settings, the analysis investigates whether the presence or absence of different signals on IPO firms has an impact on the geographic proximity of acquirers. The central proposition we develop and test is that specific characteristics of IPOs – venture capitalist backing, investment bank reputation, and underpricing of issued shares – convey signals on these firms, which can facilitate acquisitions by more remote acquirers who are more likely to face the risk of adverse selection.