Do Newly Public Acquirers Benefit Or Suffer From Their Pre-IPO Affiliations With Underwriters And VCs?

The authors examine whether pre-IPO affiliations affect post-IPO corporate events, namely acquisitions. On the one hand, newly public acquirers may benefit from their pre-IPO affiliations through residual signaling value or/and resource-related benefits. On the other hand, newly-public acquirers may suffer from those affiliations when conflicts of interests arise during the post-IPO period. Equity underwriters may have incentive to promote non-value-creating acquisitions (Type II error), and venture capitalists (VCs) may have incentive to forgo strategically important acquisitions (Type I error). Drawing on a sample of 4,029 acquisitions made by 717 newly public firms, the authors find that the announcement of an acquisition by a newly public acquirer elicits a positive response from investors on average.