Browsing by Subject "Going Public"

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Empirical essays on acquisitions
(2017) Kolb, Johannes; Tykvová, Tereza
ACQUISITIONS are among the most studied areas in corporate finance research. Still, many questions about acquisitions are unanswered and regularly debated in the literature. One of these questions is whether acquisitions create value for shareholders as well as stakeholders and what factors are related to value creation. The overarching question raised in this thesis is whether and how financial stakeholders and shareholders profit from acquisitions in different scenarios, i.e.: • Do bidder shareholders profit when financial advisors are involved in corporate acquisitions, and does the quality of financial advisors matter? Do high-quality advisors create more bidder shareholder value than lower quality advisors? • Do firms and SPAC shareholders profit from SPAC acquisitions? How do these firms (SPAC target firms) perform in comparison to firms that use an IPO to go public? This thesis consists of three empirical articles in which I address the above outlined questions. The first article focuses on the European market and asks whether the involvement of advisors in corporate acquisitions matters for bidder value creation. Although theoretical frameworks predict a positive relationship between advisor involvement and shareholder value creation, it is not confirmed by empirical evidence (see, e.g., Servaes and Zenner, 1996; Wang and Whyte, 2010). My results suggest that advisors provide value to their clients only when both the bidder and the target are located in the UK. Moreover, a difference-in-difference analysis, using a major European regulatory reform, indicates that advisors matter for shareholder value creation in acquisitions. The second article focuses not only on the question whether an advisor is involved in an acquisition but also on whether the quality of the advisor plays a role. In theory, high-quality advisors should be able to create more shareholder value for their clients than lower-quality advisors (see, e.g., Golubov et al., 2012). However, different authors find an insignificant, negative or positive relationship between advisor quality and value creation. Since these studies rely on advisor market shares or related measures to assess advisor quality and since evidence suggests that advisor market shares are not a good predictor of advisor performance (Bao and Edmans, 2011), we develop a new proxy to capture advisor quality. We define high-quality advisors as advisors that have won an award of excellence (i.e., best M&A house) and focus on the North American market. The results suggest that there is a positive relationship between award winners and value creation. Moreover, clients of award winners seem to outperform clients of non-award winners in the long term and seem to realize greater synergies. The results hold when we consider the endogenous choice of an advisor. Finally, it seems that award winners put more effort into acquisitions that are more visible. The last article focuses on SPAC acquisitions, which combine acquisitions with initial public offerings to enable firms a fast and cheap listing at a public stock exchange. We compare firms that use SPAC acquisitions to access the public market with firms that use IPOs to access the public market. The results from the analysis of 127 SPAC acquisitions and 1,128 IPOs during the wave of “new-generation” SPACs starting in 2003 suggest that SPAC acquisitions profit firms that are small, highly levered and have low growth opportunities in times with turbulent market environments. It seems that venture capital and private equity investors rather stick to the traditional way, the IPO, to bring their portfolio firms to the public market. Furthermore, firms that access the market via SPAC acquisitions underperform the market and similar IPO firms in the long run. The results of this thesis provide some evidence that financial advisors do play a crucial role and that shareholders might profit from their involvement in acquisitions. Moreover, innovations in financial markets that promise to improve the protection of shareholder interests, such as SPAC acquisitions, should be analyzed by the market participants with great care. On the one hand, they might provide value for certain firms (that are not able to access the public markets via an IPO); on the other hand, they seem to hurt shareholders that are interested in long-term gains.
Empirical essays on initial public offerings
(2022) Reiff, Annika; Tykvová, Tereza
This dissertation builds on and extends previous IPO literature by analyzing unresolved questions with regard to the phenomenon of IPO withdrawals and the effect of IPOs on industry rivals. After a short introductory chapter, chapter 2 contributes to the analysis of IPO withdrawal by taking a data-driven and forward-looking perspective. In particular, it applies two machine learning methods, namely lasso and random forest, to predict IPO withdrawal and compares the performance of both models to the performance of a logistic regression model. Results show that random forest predicts IPO withdrawal quite well and outperforms lasso and logit with regard to in-sample prediction and cross-sectional out-of-sample prediction. However, all models fail substantially when trying to predict future IPO withdrawal. One explanation for this puzzling finding is the presence of concept drift – a change in the relationship between the predictors and IPO withdrawal over time. Further, the study contributes to the clarification of the question of which variables are most important to predict IPO withdrawal by exploiting certain features of the machine learning methods and considering a vast selection of different predictors. Market characteristics at filing seem to be the most important variables for prediction in all models, while corporate governance and intermediary characteristics seem to be less important. Closely related to the second chapter, the third chapter takes a more theory-based perspective on IPO withdrawal. This chapter is co-authored with Tereza Tykvová and a reviewed version is published in the Journal of Corporate Finance. It addresses the question whether certain factors, particularly high-quality corporate governance and VC backing, may serve as signals for investors and can thus reduce the withdrawal probability, especially in risky market environments. The latter argument is based on the assumption that investors are especially careful in these situations and thus signals might be especially meaningful. Results from an interaction-term analysis suggest that corporate governance characteristics, like large and experienced boards, are indeed able to reduce the withdrawal probability in highly volatile markets. However, this finding does not hold true for VC backing per se. We therefore delve deeper into the effect of VCs by distinguishing three VC characteristics: syndicated vs. stand-alone VCs, domestic vs. foreign VCs, and VCs with high vs. low reputation. The analysis reveals that local VCs and VC syndication tend to reduce the withdrawal probability, particularly in highly volatile markets, which supports the signaling explanation. In contrast, the withdrawal probability for firms backed by reputable VCs tend to be lower only in less volatile and not in highly volatile markets. One explanation for this finding could be that these firms rather follow a dual-track strategy or postpone the IPO more likely in highly volatile markets than in less volatile markets. Chapter 4 moves away from IPO withdrawals towards the consideration of intra-industry effects of IPOs. Irrespective of the question of whether to withdraw or complete an IPO after filing, an IPO filing might influence its industry rivals. In order to analyze the mechanisms behind the effects of IPO filings on industry rivals more closely, I apply a new two-step-methodology which consists of an event study in the first step and a Difference-in-Difference analysis in the second step. This methodology allows to separately test for the existence of a competition and an information effect. The rationale of the competition effect is that by going public, firms gain some kind of competitive advantage over their industry rivals thereby increasing the competitive pressure in the industry and harm their rivals. The idea behind the information effect is that an IPO filing does not only deliver information about the IPO firm but about also about the industry in which it operates. In this connection, the information effect could either induce positive (by signaling good growth prospects) or negative (by foreshadowing future negative industry trends or revealing that the industry is overvalued) valuation effects on industry rivals. Results provide evidence for the existence of the competition effect, suggesting that IPO filings tend to harm industry rivals to a certain extent. In contrast, results do not provide sufficient evidence for the existence of the information effect. However, the lack of evidence for an aggregate information effect could also be the result of a positive effect on some but a negative effect on other rival firms which cancel each other out. Finally, chapter 5 concludes with a summary and provides and outlook for future research in the field of IPOs.
Strategic alliances, venture capital, and their roles before IPOs and M&As
(2020) Brinster, Leonhard; Tykvová, Tereza
The research objects of this dissertation are strategic alliances, venture capital (VC), and their roles before initial public offerings (IPOs) and mergers and acquisitions (M&As) of biotechnology and pharmaceutical companies. Chapter 1 begins this dissertation with a general introduction and the motivation behind the research questions. Young and small businesses face several risks and difficulties, such as lack of access to finance. Highly innovative companies, therefore, often rely on VC finance. Firms offering VC provide not only financial capital, monitoring, and coaching, but also other useful resources and might encourage their portfolio companies to join strategic alliances. Such alliances can be beneficial for the portfolio companies because they provide new knowledge, access to scarce resources, or other synergies. In addition, engagement in one or many strategic alliances can have a positive signaling effect on outsiders, and thus, increase the probabilities of a successful exit (IPO or M&A). In Chapter 2, I analyze the role of connected VC firms in strategic alliances. This chapter is co-authored with Tereza Tykvová. A reviewed version of this chapter is published in the Journal of Corporate Finance. We study a new channel through which portfolio companies benefit from ties among venture capitalists. By tracing individual VC firms’ investment and syndication histories, we show that VC firms’ ties improve companies’ access to strategic alliance partners. While existing studies demonstrate that alliances are more frequent among companies sharing the same VC firm, we provide evidence that alliances are also more prevalent among companies indirectly connected through VC syndication networks. In addition, our results suggest that VC firms’ ties mitigate asymmetric information problems that arise when alliances are formed. Finally, we demonstrate that this type of alliance is associated with higher IPO probabilities. We also provide alternative explanations of alliance formation and address related endogeneity concerns. The research objective of the third chapter is to determine the role of strategic alliances in VC exits. This chapter is co-authored with Christian Hopp and Tereza Tykvova. A reviewed version of this chapter is published in Venture Capital. Chapter 3 contributes to a better understanding of the relationship between strategic alliances and VC exits. The recent empirical literature concludes that alliances improve the probability of successful exits for venture-backed companies. When we control for observed and unobserved heterogeneity in a cohort sample of companies, self-selection into alliance activity, and censoring, we find the effect to be smaller than evidenced in prior studies. Moreover, we confirm the positive effect of alliances only for IPOs and not M&As. These findings are consistent with the view that strategic alliances help companies certify their quality for potential buyers. Chapter 4 investigates the role of strategic alliances before M&As in more detail. This chapter is a single-authored manuscript by Leonhard Brinster. Based on a large sample of M&A deals, I estimate the role of different types of ties between companies. I distinguish related alliances into direct and indirect alliances. Related alliances provide access to more information and can reduce transaction costs by reducing the time from announcement to completion of the M&A deal. The reduction of such costs can lead to a more successful target selection and increase the transaction process efficiency of the M&A deal. This effect can be explained by trust-building, better access to private information, and certification through related alliances. The empirical results show a positive relationship between related alliances and the likelihood of an M&A. However, in contrast to other studies, I do not find statistically significant evidence that supports the hypothesis that alliances increase the post-M&A performance and that alliances are associated with higher announcement returns. Finally, Chapter 5 concludes the dissertation with a short summary of the main findings and an outlook for future research.
Taking firms to the stock market : IPOs and the importance of large banks in imperial Germany 1896-1913
(2012) Lehmann, Sibylle H.
Large universal banks played a major role for Germany?s industrialisation because they provided loans to the industry and thereby helped firms to overcome liquidity constraints. Previous research has also argued that they were equally important on the German stock market. The present paper provides quantitative and qualitative evidence that although the market for underwriters was dominated by a small oligopoly of six large banks, there was still perceptible competition, which kept fees and short run profits low. Another interesting finding of the paper is the absence of a signalling effect to investors. Neither underpricing nor the one year performance was different for the IPOs issued by one of the Big Six. Thus, although the German IPO business was in the hands of a small oligopoly, investors did not benefit from the lack of competition. One explanation is that the quality of IPOs on the German stock market of the time was very good in general caused by the competition between underwriters, but also by the tight regulation of underwriting, which ensured the quality of all firms on the German stock market.
The geography of stock exchanges in Imperial Germany
(2014) Lehmann-Hasemeyer, Sibylle; Burhop, Carsten
23 Stock Exchanges were in operation in Germany in 1913. We provide new data about the number of listed firms, their market value, and the number of IPOs between 1897 and 1913 for all exchanges. We assess reasons why a firm opts to be listed at a certain exchange. Large firms tend to be listed and tend to go public at the Berlin Stock Exchange, while the regional stock exchanges were important hosts for small and medium-sized firms. Borders and distance affect listing decisions, suggesting that a patriotic home bias and asymmetric information between issuer and investors affected listing decisions.