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

Nancy Huyghebaert, Ting Liu and Lihong Wang

International Review of Finance, 2025, vol. 25, issue 1

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.

Date: 2025
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