Hostname: page-component-586b7cd67f-2brh9 Total loading time: 0 Render date: 2024-11-24T05:40:16.899Z Has data issue: false hasContentIssue false
  • English
  • Français

IPO Timing, Buyout Sponsors’ Exit Strategies, and Firm Performance of RLBOs

Published online by Cambridge University Press:  29 March 2011

Jerry X. Cao
Jerry X. Cao*
Affiliation:
Singapore Management University, 50 Stamford Rd. #04-01, Singapore 178899, jerrycao@smu.edu.sg.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper studies the impact of buyout sponsors’ initial public offering (IPO) timing on the leveraged buyout (LBO) restructuring process and subsequent exit strategies. I find that LBO duration is negatively related to hot IPO market conditions. Further, following IPOs, reverse leveraged buyouts (RLBOs) with shorter LBO duration experience greater deterioration of performance and higher probability of bankruptcy. This suggests that sponsors’ efforts to enhance operating efficiency succumb to market timing. IPO timing does not affect sponsors’ exit strategies and monitoring post IPO. Sponsors keep an active long-run presence with more reputable sponsors who are more likely to exit by facilitating takeovers.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 46 , Issue 4 , August 2011 , pp. 1001 - 1024
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aggarwal, R. K.; Krigman, L.; and Womack, K. L.. “Strategic IPO Underpricing, Information Momentum, and Lockup Expiration Selling.” Journal of Financial Economics, 66 (2002), 105–137.CrossRefGoogle Scholar
Alti, A. “IPO Market Timing.” Review of Financial Studies, 18 (2005), 1105–1138.CrossRefGoogle Scholar
Barber, B. M., and Lyon, J. D.. “Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 41 (1996), 359–399.CrossRefGoogle Scholar
Barber, B. M., and Lyon, J. D.. “Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 43 (1997), 341–372.CrossRefGoogle Scholar
Benninga, S.; Helmantel, M.; and Sarig, O.. “The Timing of Initial Public Offerings.” Journal of Financial Economics, 75 (2005), 115–132.CrossRefGoogle Scholar
Brau, J. C.; Francis, B.; and Kohers, N.. “The Choice of IPO versus Takeover: Empirical Evidence.” Journal of Business, 76 (2003), 583–612.CrossRefGoogle Scholar
Cao, J. X., and Lerner, J.. “The Performance of Reverse Leveraged Buyouts.” Journal of Financial Economics, 91 (2009), 139–157.Google Scholar
Carter, R., and Manaster, S.. “Initial Public Offerings and Underwriter Reputation.” Journal of Finance, 45 (1990), 1045–1067.CrossRefGoogle Scholar
Chou, D.-W.; Gombola, M.; and Liu, F.-Y.. “Earnings Management and Stock Performance of Reverse Leveraged Buyouts.” Journal of Financial and Quantitative Analysis, 41 (2006), 407–438.CrossRefGoogle Scholar
Degeorge, F., and Zeckhauser, R.. “The Reverse LBO Decision and Firm Performance: Theory and Evidence.” Journal of Finance, 48 (1993), 1323–1348.CrossRefGoogle Scholar
Field, L. C., and Hanka, G.. “The Expiration of IPO Share Lockups.” Journal of Finance, 56 (2001), 471–500.CrossRefGoogle Scholar
Gertner, R., and Kaplan, S. N.. “The Value Maximizing Board.” Working Paper, NBER (1996).Google Scholar
Giot, P., and Schwienbacher, A.. “IPOs, Trade Sales and Liquidations: Modelling Venture Capital Exits Using Survival Analysis.” Journal of Banking and Finance, 31 (2007), 679–702.CrossRefGoogle Scholar
Gompers, P. “Grandstanding in the Venture Capital Industry.” Journal of Financial Economics, 42 (1996), 133–156.CrossRefGoogle Scholar
Heckman, J. J. “Sample Selection Bias as a Specification Error.” Econometrica, 47 (1979), 153–161.CrossRefGoogle Scholar
Holthausen, R. W., and Larcker, D. F.. “The Financial Performance of Reverse Leveraged Buyouts.” Journal of Financial Economics, 42 (1996), 293–332.CrossRefGoogle Scholar
Jain, B. A., and Kini, O.. “The Post-Issue Operating Performance of IPO Firms.” Journal of Finance, 49 (1994), 1699–1726.Google Scholar
Jain, B. A., and Kini, O.. “Industry Clustering of Initial Public Offerings.” Managerial and Decision Economics, 27 (2006), 1–20.CrossRefGoogle Scholar
Kaplan, S. N., and Strömberg, P.. “Leveraged Buyouts and Private Equity.” Journal of Economic Perspectives, 23 (2009), 121–146.CrossRefGoogle Scholar
Kaplan, S. N., and Zingales, L.. “Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints? ” Quarterly Journal of Economics, 112 (1997), 169–215.CrossRefGoogle Scholar
Loughran, T., and Ritter, J. R.. “The New Issues Puzzle.” Journal of Finance, 50 (1995), 23–51.CrossRefGoogle Scholar
Lowry, M., and Schwert, G. W.. “IPO Market Cycles: Bubbles or Sequential Learning? ” Journal of Finance, 57 (2002), 1171–1200.CrossRefGoogle Scholar
Muscarella, C. J., and Vetsuypens, M. R.. “Efficiency and Organizational Structure: A Study of Reverse LBOs.” Journal of Finance, 45 (1990), 1389–1413.CrossRefGoogle Scholar
Pastor, L.; Taylor, L. A.; and Veronesi, P.. “Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability.” Review of Financial Studies, 22 (2009), 3005–3046.CrossRefGoogle Scholar
Pastor, L., and Veronesi, P.. “Rational IPO Waves.” Journal of Finance, 60 (2005), 1713–1757.CrossRefGoogle Scholar
Ritter, J. R. “The ‘Hot Issue’ Market of 1980.” Journal of Business, 57 (1984), 215–240.CrossRefGoogle Scholar
Ritter, J. R. “The Long-Run Performance of Initial Public Offerings.” Journal of Finance, 46 (1991), 3–27.Google Scholar
Ritter, J. R., and Welch, I.. “A Review of IPO Activity, Pricing, and Allocations.” Journal of Finance, 57 (2002), 1795–1828.CrossRefGoogle Scholar
Schultz, P. “Pseudo Market Timing and the Long-Run Underperformance of IPOs.” Journal of Finance, 58 (2003), 483–517.CrossRefGoogle Scholar
Zingales, L. “Insider Ownership and the Decision to Go Public.” Review of Economic Studies, 62 (1995), 425–448.CrossRefGoogle Scholar