Delaware Reincorporation and the Double-Exit Puzzle: Evidence from Post-Initial Public Offering Acquisitions

Yang Xu (), Vincent Jia, Xinze Qian, Haizhi Wang and Xiaotian Zhang
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Yang Xu: Calamos Investment LLC, Naperville, IL 60563, USA
Vincent Jia: College of Social Science, University of California, Los Angeles, CA 90095, USA
Xinze Qian: Stuart School of Business, Illinois Institute of Technology, Chicago, IL 60661, USA
Haizhi Wang: Stuart School of Business, Illinois Institute of Technology, Chicago, IL 60661, USA
Xiaotian Zhang: Department of Finance, School of Economics and Business Administration, Saint Mary’s College of California, Moraga, CA 94575, USA

IJFS, 2024, vol. 12, issue 2, 1-15

Abstract: Initial public offerings and mergers and acquisitions represent important opportunities for investors to exit and harvest their entrepreneurial success. Some firms are acquired shortly after their initial public offerings. This exit strategy is known as a double exit. In addition, issuing firms may choose to reincorporate in Delaware during their IPOs. In this study, we use hand-collected data from 1993 to 2020 to investigate whether and to what extent Delaware reincorporation may affect the M&As in the post-IPO stage. We use a Cox proportional hazard model to test the relation between Delaware reincorporation and the likelihood of being acquired for our sample IPOs. Recognizing that Delaware reincorporation is not a random decision, we adopt a Heckman switching regression method to estimate the relation between Delaware reincorporation and takeover premiums and announcement returns. We report that IPO firms choosing to reincorporate in Delaware experience a higher likelihood of being acquired compared to those IPO firms choosing to remain incorporated in their home states. We further document that IPO firms choosing to reincorporate in Delaware receive lower premiums in acquisitions, and experience lower abnormal returns on announcements.

Keywords: reincorporation; IPO; mergers and acquisitions; double exit (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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