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Excess IPO funds as an imprint: An imprinting perspective of acquisition activity

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Abstract

This study focuses on the unique feature of Chinese firms’ excess funds raised from initial public offerings (IPOs) and examine why these funds have persistent impacts on the IPO firms’ acquisition activities. We extend the imprinting perspective by incorporating the notion that sudden wealth from IPOs may become a resource imprint that persistently influences the strategy of newly public firms. We argue that excess IPO funds (i.e., actual subscription value received exceeding the expected value), as sudden wealth, may create a lasting effect on IPO firms to engage in acquisition activities during the transformation from private to public status. We also introduce corporate leaders as carriers of such imprints and suggest that their stability, political experience, and social status strengthen the firm’s imprinting effect. Using a sample of Chinese IPO firms, we find evidence that supports our predictions.

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Notes

  1. At the same time there were 114 IPO firms raised funds below expected value, and the total gap was -29.64 billion yuan. (https://finance.sina.com.cn/roll/2023-02-06/doc-imyeumii6354479.shtml).

  2. Following the IPO literature, we define “initial condition” as the condition(s) at the time of IPO or a significant event (Pollock, Porac, & Wade, 2004). This term is in contrast to “founding condition” in the imprinting perspective, which commonly refers to organizational birth (Simsek et al., 2015).

  3. According to Article 12 in Chapter 2 of the Securities Law of the People’s Republic of China enacted by the Sixth of the Ninth National People's Congress Standing Committee Meeting in 1998, IPO firms are mandated to disclose their expected value of raised funds and the expected means of using these funds. Based on the Securities Law and Corporation Law, the CSRC announced “Regulations of Securities Issuance and Underwriting,” which further details content rules of prospectuses.

  4. According to Article 50 of the Securities Law and Article 9 of the Securities Issuance and Underwriting Management measures, the initial issue ratio needs to exceed 60% of shares in public issuance.

  5. Going public in 2009, the firm achieved its growth target within one year through lavish investments. In an interview, Mr. Chen told that “Aier will build clinics in most major cities by the end of 2012, following our path of acquisition.” Source: http://finance.sina.com.cn/stock/t/20110930/031110567337.shtml

  6. Source: https://www.yicai.com/news/777296.html

  7. Source: http://stock.10jqka.com.cn/20110114/c521706467.shtml

  8. Source: http://finance.sina.com.cn/roll/20110116/03599260290.shtml

  9. It is useful to note that in December 2013, the CSRC announced “A Temporary Regulation on Shareholders’ Offering Shares in IPO,” a policy that required shareholders to hold firms’ equities at least for 36 months to avoid opportunistic behavior. This policy encouraged more reasonable pricing of new shares and thus reduced the phenomenon of excess IPO funds. Our sample covered firms that went public between 1999 and 2011 and was not subject to this new regulation.

  10. According to Chapter 3 in “Interim Measures for the Administration of Initial Public Offering and Listing of Stocks” published by the CSRC in 2006, issuing shares and price ranges are subject to strict verification by the CSRC. Adjustments after the process of verification and before the end of first-day transaction will lead to a suspension in the IPO process or going through verification again (http://www.gov.cn/flfg/2006-05/18/content_283660.htm).

  11. In 2004, the CSRC formally issued a policy to initiate regulations over IPO pricing. In June 2009, the CSRC published another guidance policy aiming to reform the A-share IPO market to be more market-based. The CSRC vowed to stop pricing interventions on IPOs. However, this policy was called to a halt, along with the ceasing of IPOs, in November 2012.

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Acknowledgements

This research, on which this paper is based, was financially supported by the National Natural Science Foundation of China (Grant No. 72172016; 72272085), and Natural Science Foundation of Guangdong Province (Grant No.2020A1515011227).

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Authors and Affiliations

  1. School of Economics and Management, Beijing University of Posts and Telecommunications, Beijing, 100876, China

    Yanyu Wang

  2. School of Economics and Management, Tsinghua University, Beijing, 100084, China

    Rui Wu

  3. Jindal School of Management, University of Texas at Dallas, 800 West Campbell Rd, Richardson, TX, 75080, USA

    Jun Xia

  4. Management School, Jinan University, 601 Huangpu Avenue West, Guangzhou, China

    Zhouyu Lin

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Appendix

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Tables 4 and 5

Table 4 Robustness tests by expanding the observation window, and changing IV, DV and CV
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Table 5 Robustness test of adding organic growth
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Wang, Y., Wu, R., Xia, J. et al. Excess IPO funds as an imprint: An imprinting perspective of acquisition activity. Asia Pac J Manag (2023). https://doi.org/10.1007/s10490-023-09890-9

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  • DOI: https://doi.org/10.1007/s10490-023-09890-9

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