Do IPOs Affect the Choice of Joint Ventures or Acquisitions?
Abstract
Drawing upon information economics, we investigate firms' decisions to acquire or form joint ventures with newly-public firms. The core issue we examine is whether signals sent during IPOs have efficiency implications for organizational governance choices concerning issuing firms. Our focus is on issuers' associations with reputable investment banks and with venture capitalists, both of which engage in vetting and bonding activities for firms that go public. The results demonstrate that usage of joint ventures over acquisitions is negatively related to the reputation of the issuer's investment bank. Venture capitalist backing appears to be a useful signal in 'colder' IPO markets and for potential acquirers with dissimilar knowledge bases vis-à-vis the issuing firm. We find strong evidence that firms tend to use joint ventures over acquisitions in inter-industry combinations compared to horizontal deals, which is also consists with the theory that joint ventures mitigate the risk of adverse selection.
Program Directors:
Prof. Dr. F.A.J. van den Bosch,
Prof.Dr. H.W. Volberda
Prof.Dr. L. Sleuwaegen
Contact information:
Carolien Heintjes
