Public and private takeover markets : an empirical analysis
Stegemoller, Michael A
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An unparalleled $2.7 trillion worth of merger and acquisition activity occurred in the 1990s. These mergers resulted in the combination of firms that were able to combine rapidly changing technologies in new ways. Despite the large amount of merger activity in this period, there is relatively little research studying these mergers and the financial markets that facilitated them. My research addresses the following basic questions about takeovers. The first is whether mergers and acquisitions facilitate economic growth, and the second examines why private firms sell-out to public companies instead of undertaking an initial public offering.|I find that acquisitions create tremendous value for those firms utilizing them as a means of corporate change. Frequent acquirers outperform non-frequent acquirers using both economic and accounting measures of performance. Additionally, the level of over-performance is positively influenced by the relative size of the acquisition program of the acquirer.|I also examine the transition from private to public ownership by private owners selling their business to a public corporation. I compare these transactions to initial public offerings to better compare the characteristics that influence the decision to be acquired versus "go public." My results suggest that private firms seeking to transition to public ownership choose an acquisition as the means of transition based on firm-specific characteristics such as growth rates, insider ownership, leverage, and profitability.