Abstract
We examine the IPO firm's acquisition activity influence on the long-run performance of IPO during 1994-2015. We find that the IPO acquiring firms are generating positive abnormal returns for the first two years of going public and in the third, these firms generate negative abnormal returns, but they perform better than the non-acquiring IPO firms. We further investigate influence acquiring by introducing other factors which influence the performance of IPO, we find that the acquisition activity was not significant or weakly significant and beta values to be positive. We conclude that the investors are confident that the acquisition activity of IPO firms are value enhancing which otherwise believed.Keywords: IPO acquirer, BHAR, long-run performance.JEL Classifications: G24, G34DOI: https://doi.org/10.32479/ijefi.8004
Highlights
Do IPO firms subsequent acquisition activity influence the long-run underperformance of IPOs? This intrigues from the studies of Brau et al (2012) and Bessler and Zimmermann (2011), Brau et al (2012) analysed 3547 US IPOs to determine the impact of the acquisition activity on the performance and reported that the firms which went for acquisitions generated negative returns more than double of that firms which didn’t went for acquisitions
Bessler and Zimmermann (2011) reported by investigating 2679 IPOs issued during 1996-2010 in Europe to study the influence of acquisition activity on the IPO firms performance and conclude that the IPO firm’s performance which went for acquisition was not significantly different from the IPO non-acquirer firm
The abnormal returns of the acquiring firms in the first 2 years is positive and overall IPOs in the 1st year doesn’t generate the negative abnormal which is contrasting from the western scenario, similar findings was reported by Kumar (2007)
Summary
Do IPO firms subsequent acquisition activity influence the long-run underperformance of IPOs? This intrigues from the studies of Brau et al (2012) and Bessler and Zimmermann (2011), Brau et al (2012) analysed 3547 US IPOs to determine the impact of the acquisition activity on the performance and reported that the firms which went for acquisitions generated negative returns more than double of that firms which didn’t went for acquisitions. Bessler and Zimmermann (2011) reported by investigating 2679 IPOs issued during 1996-2010 in Europe to study the influence of acquisition activity on the IPO firms performance and conclude that the IPO firm’s performance which went for acquisition was not significantly different from the IPO non-acquirer firm. Wiggenhorn et al (2007) reported similar findings that IPO acquirer firms performance was not significantly different from the IPO non-acquirer firm. Bessler and Zimmermann (2011) reported by investigating 2679 IPOs issued during 1996-2010 in Europe to study the influence of acquisition activity on the IPO firms performance and conclude that the IPO firm’s performance which went for acquisition was not significantly different from the IPO non-acquirer firm. The present study tests the influence of acquisition activity of IPO firms on the overall IPOs performance in an emerging economy like India. Indian financial markets are not mature as compared to the western financial markets They are constantly evolving, to protect the interests of investors. Securities and Exchange Board of India (SEBI) guidelines direct the IPO allocation as per set rules i.e., 50% to the institutional, 15% to the high net worth and 35% to the retail investors. Information asymmetry due to the institutional voids clubbed with the poor financial literacy among the investor’s magnitude of underpricing is very high. Marisetty and Subrahmanyam (2010) in their study reported that underpricing of IPOs issued during 1996-2006 is 100% on an average
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
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 call
