We study the operating, financial, and ownership structure characteristics of newly listed firms which become acquisition targets shortly after their initial public offerings. We examine whether such firms get acquired because of their successful performance or as an alternative to delisting. We find that firms, which do relatively well in terms of operating as well as stock performance and attract institutional investor interest, draw the attention of acquirers. Furthermore, we observe that investments made by newly listed target firms do not destroy shareholder value and have comparable profitability to investments made by newly listed firms which grow by acquisitions. Overall, firms acquired shortly after listing are on a growth trajectory similar to that of surviving firms.

This paper examines speculation spreads following initial acquisition announcements in 362 cash tender offers spanning the 1981–1995 period. Speculation spreads in acquisitions, defined as the percentage difference between the bid price and market price one-day after the initial announcement, are the starting point for arbitrage returns, a subject receiving increased attention in practice and in the literature. Speculation spreads exhibit a positive mean, with considerable cross-sectional variation. In fact, over 23% of speculation spreads are negative, indicating a post-announcement price greater than the initial bid price. In spite of its importance, the informational content of the speculation spread and the reasons for its cross-sectional variation have not been previously examined. We model speculation spreads as the visible component of total speculative returns of the target. Rational traders set speculation spreads anticipating the expected price resolution and length of the acquisition bid. Empirically, we find strong support for key implications of our model. Speculation spreads are significantly related to bid and offer characteristics observable ex ante. Consistent with our model, they are also significantly negatively related to the magnitude of price revision and significantly positively related to offer duration. These results are robust to the inclusion of bid and offer characteristics known ex ante as well as those only revealed ex post. The results are consistent with market pricing of both offer duration and price resolution at the time of the initial announcement.

We document that acquirer announcement returns decrease and takeover premiums increase with the length of time since targets’ initial public offerings. Declining asymmetric information that leads to lower target valuation uncertainty for the acquirer can explain these effects. Newly public targets have greater information asymmetry (relative to their established counterparts) making their valuation more uncertain for a less-informed acquirer. Risk-averse acquirer managers pay less for riskier targets, resulting in lower takeover premiums and higher acquirer announcement returns. Over time, as the target builds a public track record, the asymmetric information about its valuation declines and takeover premiums increase to the benefit (detriment) of target (acquirer) shareholders.

Prior research documents that acquirers of public targets earn zero or negative announcement period returns, while acquirers of private and subsidiary targets earn positive returns. This finding is clearly important to managers and stockholders of acquirers and targets. We employ a large sample of public and subsidiary targets to test four previously unexamined theories of the return differential: synergy, target financial liquidity, target valuation uncertainty, and target bid resistance. We find that none of the empirical measures related to these four theories explains the return differential. This is surprising, since the theories have generally found empirical support in other financial areas.

We analyze the relation of private firms' CEO compensation with the probability of sale of a firm and its valuation at the time of the sale. Specifically, we study whether equity-based remuneration is consistent with compensating the CEO for effort related to selling the private firm, or with compensating for the illiquidity of the equity-based compensation for private firms. Using a sample of large private firms with public filings, we find that CEOs of IPO and acquired private firms have higher total and equity-based compensation than CEOs of firms that remain private. We also show that CEO compensation is positively related to the valuation premium of IPOs versus acquired firms.

Academic literature, practitioners, courts, and regulators routinely assert that both private and subsidiary targets sell at discounts relative to public targets. However, the empirical evidence to support this conclusion is thin. Our work alters the methodology from prior research to avoid biases due to both one-sided sample truncation and Jensen’s inequality. Following these changes, we find no evidence that unlisted targets sell at discounts. Our results hold under a number of different approaches and after controlling for known determinants of acquisition pricing.

We examine the announcement returns of acquisitions made by Indian firms during the period 1995–2011. Our results confirm that the announcement returns to Indian acquirers are on average significantly positive. However, we are first to document that the announcement returns to Indian acquirers decline over time and become, on average, negative towards the end of our sample period. We analyze several hypotheses for such decline and find that the decline, while robust to a variety of explanations, is related to the intensity of the market for corporate control in India. Finally, the post-acquisition long-run returns for acquirers are, on average, consistently positive, do not change over time, and are unrelated to the initial market reaction to the acquisition announcement.

During the subprime crisis, the Federal Reserve introduced several emergency liquidity programs as supplements to the discount window (DW): TAF, PDCF, and TSLF. Using data on loans to large commercial banks and primary dealers, we find that the programs were used by relatively few institutions and thus provided limited relief to banks that relied on short-term debt markets. Although usage increased after Lehman's bankruptcy, most commercial banks avoided the DW and TAF. We also find that the programs were more often used by failed European banks than by healthy US banks, likely because these loans are expensive relative to private market funds. Our results also show that usage of PDCF and TSLF programs, while higher, was more often used by primary dealers in weaker financial position.

During the subprime crisis, the Federal Reserve introduced several emergency liquidity programs as supplements to the discount window (DW): TAF, PDCF, and TSLF. Using data on loans to large commercial banks and primary dealers, we find that the programs were used by relatively few institutions and thus provided limited relief to banks that relied on short-term debt markets. Although usage increased after Lehman's bankruptcy, most commercial banks avoided the DW and TAF. We also find that the programs were more often used by failed European banks than by healthy US banks, likely because these loans are expensive relative to private market funds. Our results also show that usage of PDCF and TSLF programs, while higher, was more often used by primary dealers in weaker financial position.

We examine the valuation effect of the resolution of a bank’s insolvency on commercial clients. Our sample includes 29 insolvent banks in Indonesia, Korea, and Thailand that serve as main creditors for 269 publicly traded companies. Our findings suggest that a bank relationship adds value to a firm, and that this value depends on investors’ certainty in the continuity of the banking relationship. Significant cumulative returns for 50 days following the event date suggest that the type of resolution has real effects on the performance of related firms above initial expectations.