Geographic Distance And M&Amp;A Markets: Ipos As Information Diffusion Mechanisms

This paper examines acquisitions of small firms after they underwent an initial public offering (IPO). The research question we study is whether the signals sent on the issuer affect the type of acquirer that purchases the firm. We use insights from recent studies that examine geographic distance as a source of adverse selection in other markets. We develop the argument that specific features of issuing firms and the IPO process - venture capitalist backing, investment bank reputation, and underpricing - potentially provide signals that mitigate the effects of information asymmetry. The findings illustrate the relevance of market-based remedies to the risk of adverse selection in M&A deals and highlight the interdependencies between IPO and M&A markets