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Stock-financed M&As of newly listed firms

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Abstract

Newly listed firms are increasingly active in mergers and acquisitions (M&As). The “stock as currency” motivation explains why firms engage in stock-financed acquisitions after their Initial Public Offering (IPO). We extend its implications by focusing on the role played by stock liquidity, which entails potential benefits not only for prospective acquirers, but also for targets. We find that 16.3 % of the population of 3433 firms going public in Europe from 1995 to 2009 become acquirers within 3 years of the IPO, while 16.8 % are targeted. Firms with more liquid stocks are more likely to acquire and complete a larger number of stock-financed acquisitions. More liquid firms are also more likely to be acquired, and at higher valuations. Our firm-level findings, supported by time-series regressions, imply that firms should time their IPO based on liquidity considerations to facilitate subsequent M&A activity as either acquirer or target.

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Notes

  1. From 2005, we consider Euronext, a pan-European stock exchange including France, Belgium, Netherlands, and Portugal exchanges.

  2. A correlation matrix for the independent variables employed in the multivariate analysis is reported in Appendix 1. The variance inflation factors (VIFs) associated with each model specification all fall well below the acceptable benchmark of 10, indicating multicollinearity is not a concern.

  3. Data from Migliorati and Vismara (2014).

  4. We compute a firm’s intrinsic value as a linear function of book value of equity, net income (i.e., the growth of book value of equity), and leverage, following Fu et al. (2013).

  5. We empirically tested whether M&A intensity affects valuation premium by including it as a regressor in the second step, and found that its coefficient was not statistically different from zero.

  6. We obtain the economic impact by estimating the marginal effect associated with each liquidity measure, and multiply it by the corresponding standard deviation.

  7. The definitions of the independent variables are provided in Appendix 2.

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Correspondence to Andrea Signori.

Appendices

Appendix 1

See Table 9.

Table 9 Correlation matrix

Appendix 2

See Table 10.

Table 10 Definition of independent variable used in the time series regression (Table 8)

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Signori, A., Vismara, S. Stock-financed M&As of newly listed firms. Small Bus Econ 48, 115–134 (2017). https://doi.org/10.1007/s11187-016-9767-0

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