Post-IPO Corporate Life Cycle And Takeovers

The authors use corporate life cycle theories to investigate the motives and wealth effects of takeovers by classifying firms into three post-IPO stages using cluster analysis. They find that the free cash flow and real property theories and corporate governance quality are applicable only to old firms. Asset undervaluation and a firm's financial conditions can, however, explain takeover likelihood in both young and mature firms. Further, whilst anti-takeover provisions can reduce takeover likelihood in young firms, they actively facilitate acquisitions in mature and old firms. There is little evidence that the announcement returns alter with life cycle, but the determinants of these returns are different.