Abstract
We compare firms that go public using penny stock initial public offerings (PSIPOs) to those using reverse mergers (RMs). Firms using RMs tend to be highly information asymmetric in contrast with the existing going public theory. Firms tend to opt for the RM path with the intent to acquire a greater market share using stock as a medium of payment. When compared to PSIPOs, RMs are small, have low profitability, are in the development stage with limited operating history, and plan high research and development expenditures. RM firms hoard cash, which they get through Private Investments in Public Equity (PIPEs) that are consummated concurrently with the RM. PIPE investors and insiders maintain a high ownership stake following a RM. Managers of firms engaging in PSIPOs are more likely to cash out.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
