Acquisition Activity and IPO Underpricing |
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| Authors: | Thomas J Boulton Scott B Smart Chad J Zutter |
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| Institution: | 1. Thomas J. Boulton is an Assistant Professor of Finance in the Farmer School of Business at Miami University, Oxford, OH 45056.;2. Scott B. Smart is a Professor of Finance in the Kelly School of Business at Indiana University, Bloomington, IN 47405.;3. Chad J. Zutter is an Associate Professor of Finance in the Katz Graduate School of Business at the University of Pittsburgh, Pittsburgh, PA 15260. |
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| Abstract: | We propose an “M&A activity” hypothesis as a partial explanation for initial public offering (IPO) underpricing. When going public during active corporate control markets, managers may take actions to safeguard their control. In support of this conjecture, we find that pre-IPO M&A activity directly explains IPO underpricing. We also find that underpricing and ownership dispersion are positively correlated, as are ownership dispersion and the probability of remaining independent. Considering the possibility that some managers take their firms public to be acquired, we find that the positive link between M&A activity and underpricing is not robust for firms that are viewed as likely targets. |
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