The impact of acquisition activity on IPO long-run performance: evidence from Europe

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School of Business | Bachelor's thesis
Date
2016
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
22
Series
Abstract
The role of acquisitions in the initial public offerings’ (IPOs’) performance has been studied widely in the U.S. but rather little within European markets. This thesis researches 5,052 European IPOs from 1990 to 2009 to find out whether the acquisition activity influences the long-run performance of newly public firms. Using calendar and event-time approaches, I concluded that the post-IPO acquirers experience significantly poorer performance in the years 2-6 after the issue compared to the non-acquirers group. The non-acquirers earn a Fama-French three-factor monthly alpha of 0.81% while acquirers earn only a monthly alpha of 0.19% during the period. The mean differences in cumulative returns for these groups supports this finding as they are significant for the years 4-6 after the IPO. The results confirm that the management of the IPO firms are exposed hubris and overconfidence when making acquisition decisions shortly after going public as well as investors are exposed to over optimism about these acquisitions. The results indicate as well that acquisitions play an important role in the well-documented IPO long-run underperformance also in Europe.
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Thesis advisor
Önal, Bunyamin
Keywords
initial public offerings, acquisitions, long-term perfomance, Europe
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