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Initial public offering over‐issuance and a firm's acquisition behavior: Evidence from China

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  • Nancy Huyghebaert
  • Ting Liu
  • Lihong Wang

Abstract

We analyze the relation between initial public offering (IPO) over‐issuance and a firm's subsequent acquisition decisions. We find that newly listed firms are more likely to engage in merge & acquisitions (M&As) and initiate more and larger‐sized M&As after raising more excess cash in their IPO. Additionally, this IPO over‐issuance is negatively associated with the newly listed firm's post‐acquisition stock performance. Moreover, Type I (principal‐agent) and Type II (principal‐principal) agency problems explain those relations. The negative relation between IPO over‐issuance and stock performance is exacerbated for companies that have made large and industry‐diversifying M&As. Further analyses reveal that acquirers who raised more excess cash in their IPO prefer to pay for their M&As entirely in cash.

Suggested Citation

  • Nancy Huyghebaert & Ting Liu & Lihong Wang, 2025. "Initial public offering over‐issuance and a firm's acquisition behavior: Evidence from China," International Review of Finance, International Review of Finance Ltd., vol. 25(1), March.
    • Handle: RePEc:bla:irvfin:v:25:y:2025:i:1:n:e70001
    DOI: 10.1111/irfi.70001
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