Relative to focused firms, issues by diversified firms are more likely to be equity carveouts and less likely to be in a High-Tech industry.
To control for this possibility, we include dummy variables for equity carveouts and reverse leveraged buyouts (LBOs).
New markets, new products, and new definitions excite a host of industries, and equity carveouts
, spinoffs, and demergers are regular occurrences.
Dummies for equity carveouts and reverse leveraged buyouts (LBOs), both of which are IPOs involving firms with a prior history as publicly traded entities, are included as controls.
Finally, equity carveouts are associated with less underpricing.
The groups we consider are IPOs backed by VCs compared to those that are not, firms in high-tech industries compared to all other industries, young firms compared to old firms, and equity carveouts compared to all other IPOs.
1998) find that equity carveouts are driven by windows of opportunity that allow pre-IPO shareholders to maximize the proceeds from selling their shares.
Lastly, in Model 4, we consider the impact of equity carveouts by interacting the equity carveout indicator with the M&A activity measure and each of the control variables.
1998) who suggest that equity carveouts are driven by windows of opportunity, we fail to find a positive link between M&A activity and underpricing for the subsample of equity carveouts.
If such a problem existed, we would not expect the relation between pre-IPO M&A activity and IPO underpricing to disappear for venture-backed firms, firms less than five years old, and equity carveouts, or change signs for high-tech firms unless one is willing to argue that the timing of these types of IPO firms systematically varies with the omitted variable.