Exploring the acquisition behavior of penny stock firms

Document Type

Article

Source of Publication

The British Accounting Review

Publication Date

11-1-2023

Abstract

We document that penny stock firms' acquisition likelihood increases with firm size, sales growth, free cash flow, stock price volatility, and run-up, but decreases with leverage, the number of years since IPO, and Tobin's Q. These findings are validated in a stepwise regression framework and are robust to alternative model specifications. Penny stock acquirers prefer private targets and are more (less) likely to use stocks (cash) as the payment method. We also find that acquisitions announcement returns are higher for penny stock firms than for non-penny stock firms, even after accounting for firm- and deal-characteristics. Further analyses indicate that the increase in announcement returns is driven by the firm's improved information environment. Overall, we document that penny stock firms are significant players in the market for corporate control.

ISSN

0890-8347

Publisher

Elsevier BV

First Page

101276

Last Page

101276

Disciplines

Business

Keywords

Penny stock acquirers, Mergers and acquisitions, Abnormal returns, Method of payment, Target selection

Indexed in Scopus

no

Open Access

no

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