Journal of Financial and Quantitative Analysis

Research Articles

The Desire to Acquire and IPO Long-Run Underperformance

James C. Braua1, Robert B. Coucha2 and Ninon K. Suttona3

a1 Marriott School, Brigham Young University, TNRB 640, Provo, UT 84602

a2 Atkinson Graduate School of Management, Willamette University, 309 Mudd Bldg, Salem, OR 97301

a3 University of South Florida (USF), 4202 E Fowler Ave, BSN 3403, Tampa, FL 33620.


We analyze 3,547 initial public offerings (IPOs) from 1985 through 2003 to determine the impact of acquisition activity on long-run stock performance. The results show that IPOs that acquire within a year of going public significantly underperform for 1- through 5-year holding periods following the 1st year, whereas nonacquiring IPOs do not significantly underperform over these time frames. For example, the mean 3-year style-adjusted abnormal return is – 15.6% for acquirers and 5.9% for nonacquirers. Our cross-sectional and calendar-time results suggest that the acquisition activity of newly public firms plays an important and previously unrecognized role in the long-run underperformance of IPOs.

(Online publication April 20 2012)


We thank Dan Bradley, Ozzie Ince, Tim Loughran, Paul Malatesta (the editor), Grant McQueen, Bill Megginson, Todd Mitton, Keith Vorkink, and Lu Zhang, as well as seminar participants at the 2010 Financial Management Association Annual Meeting, Sungkyunkwan University, International University of Japan, Korea Advanced Institute of Technology, Willamette University, and Brigham Young University (BYU). We are grateful to Jay Ritter (associate editor and referee), who provided detailed comments and valuable suggestions for the paper. We also express appreciation to Greg Adams for excellent programming research assistance. Brau recognizes funding from his Goldman Sachs Faculty Fellowship and a Marriott School Entrepreneurship Center research grant. Sutton recognizes funding from a USF College of Business summer research grant. We acknowledge the BYU Silver Fund, which paid for databases and research support. We are responsible for any remaining errors.