Understanding reverse mergers: a first approach

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dc.contributor.author Arellano Ostoa, Augusto
dc.contributor.author Brusco, Sandro
dc.date.accessioned 2006-11-07T09:28:47Z
dc.date.available 2006-11-07T09:28:47Z
dc.date.issued 2002-05
dc.identifier.uri http://hdl.handle.net/10016/66
dc.description.abstract A reverse merger (RM) is a technique in which a private company is acquired by a shell or defunct public company via stock swap. As a result, the private company becomes public. The main difference between an IPO and a RM is that an IPO allows going public and also allows raising capital while the RM only allows going public. This paper addresses the following question: Why do some companies prefer a RM to an IPO? We construct a three-period model in which a company has uncertainty about the availability of a project and need to issue equity to finance it. The model predicts that under suitable conditions, a separating equilibrium exists in which a high-type firm will prefer IPO and a low-type firm will prefer RM. The empirical evidence supports these predictions. In addition, looking at the cost of RMs between 1990 and 2000 in the NYSE and NASDAQ and adding the cost of an additional SEO, we find evidence to support the idea that an IPO and a RM are equally costly.
dc.format.extent 408805 bytes
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries Workings Paper. Bussiness Economics
dc.relation.ispartofseries 2002-11
dc.title Understanding reverse mergers: a first approach
dc.type workingPaper
dc.subject.eciencia Empresa
dc.rights.accessRights openAccess
dc.identifier.repec wb021711
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