Abstract
The performance reverse takeover firms or reverse merger firms have been studied in correlation to traditional initial public offering (IPO) performance. However, those studies have not been extensive enough to explain the contributing factors of the reverse merger performance. Some of the previous studies have compared the implication of corporate governance attributes and the implication of the financial conditions of the involving firms to the reverse merger firm performance. However, there are more areas to be assessed in the perspective of corporate governance, including the variety of ownership structure and its effect on the risk-taking behavior and reputation. This study proposes a new conceptual model on how corporate governance and financial characteristics influence the reverse merger performance, constructed from the literature review. The conception of the reverse merger characteristics and how they are associated with the firm performance is expected to support investor in their investment decision.
Highlights
According to Arellano-Ostoa and Brusco (2002), a reverse merger is a practice in which a private firm is acquired by a public shell via stock swap that allows the private firm to go public. Feldman (2006) stated that a reverse merger arises when private firm merges with a public firm with no business purpose, which is called a “shell.” After a reverse merger, the private firm becomes a public firm at once
Despite that the Chief Executive Officer (CEO) with a lot of previous experience in the public firm is expected to have a valuable contribution to the firm performance, the study found that firms without CEO replacement are unlikely to survive than the firms with CEO replacement, while the shell has lesser liquidity
Firms with enhanced corporate governance practices tend to maintain their existence after the transaction CEO ownership, staggered board, and venture ownership have a positive impact on the ability of the reverse merger firms to survive The correlation of average board term and the survival probability of reverse merger firms is concave Survival is subject to financial conditions of the merging firms and on the governance features which is assumed to improve their value
Summary
According to Arellano-Ostoa and Brusco (2002), a reverse merger is a practice in which a private firm is acquired by a public shell via stock swap that allows the private firm to go public. Feldman (2006) stated that a reverse merger arises when private firm merges with a public firm with no business purpose, which is called a “shell.” After a reverse merger, the private firm becomes a public firm at once. Private firms can take advantages from the reverse merger as an alternative way to go public, such as lower cost, a faster process when compared to IPOs (Feldman, 2006; Das, 2013; Ojha et al, 2013; Kyfonidou, 2012). It involves less dilution and does not need underwriters (Feldman, 2006).
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