Yang Zhao

Abstract

This thesis includes three individual empirical papers, with the key focus on the role of information asymmetry and post-restructuring firm performance. Chapter 2 and 3 examines if information asymmetry (IA) affects post-IPO firm performance and what factors help explain IA in the U.S. and Chinese markets, respectively. Chapter 4 examines if IA affects the post-takeover performance for US acquiring firms.

Chapter 2 examines the determinants of post-IPO IA and its impact on post-IPO long-run performance for U.S. IPOs over the period 2002 to 2017. I find that having a reputable underwriter, and IPOs that are more engaged with analysts are associated with lower IA and so greater consensus, while IPOs backed by top auditors and foreign IPOs face higher IA. I show that underpricing is positively related to post-IPO IA, and analysts perceive underpricing as a quality signal so encouraging positive forecasts (i.e., positive raw AFE). I also examine post-IPO IA evolution and find that IA declines in the post-listing period, indicating that firms provide more transparent information overtime. Further, I examine the impact of regulation changes on IA and find that emerging growth companies (EGCs) have significantly higher IA after the passage of the JOBS Act 2012 consistent with JOBS allowing less disclosure of proprietary information. In addition, after controlling for potential endogeneity using a difference-in-difference model, I also show a negative relation between absolute IA and post-IPO performance, suggesting that larger IA or less analyst consensus correctly predicts poor long-run performance, supporting the adverse selection theory. Overall, my results suggest that larger IA captures greater IPO risk and IPO underperformance, which is incremental to initial IPO underpricing.

Chapter 3 examines the determinants of pre-IPO IA using Chinese A-share IPOs over the period 2007 to 2021, and its impact on post-IPO long-run performance. I find that IPOs of State-Owned Enterprises (SOE) face lower IA, especially for local SOEs, where the relationship is moderated by local regions’ development level and industry concentration. In addition, I show that the involvement of prestigious underwriters and auditors are associated with greater consensus, and firms that are older and have larger board size face lower IA, while firms with greater R&D intensity and patent filings have greater IA. Interestingly, unlike the US IPO market, I find that firms experience increased IA and a decline in analyst coverage for post-IPO periods. I also examine the impact of the anti-corruption campaign on IA, using a staggered difference-in-difference model, and find that the anti-corruption campaign significantly reduces pre-IPO listing IA. Further, the determinants of IA also influence underpricing, and I show a negative relationship between pre-IPO listing IA and underpricing, as well as a negative relation with post-IPO long-run performance.

Chapter 4 examines the impact of target IA on US acquiring firm’s post-takeover performance over the period 1990 to 2015. Prior theoretical research presents a contradictory explanation of target IA on post-takeover performance, which either poses threats to acquiring firms due to an adverse selection problem or gives rise to superior performance by obtaining private information. My results support the private information theory. I report a stronger relationship for more innovative deals, especially when the target has high R&D intensity. I also show that stock financing for these deals provides additional improvement in post-takeover performance, consistent with possible ‘championing culture’ benefits and with stock mitigating part of the increased risk for more innovative deals. I provide some evidence to support that private information obtained relates to pre-takeover innovation and show that acquirers significantly increase R&D investment post-takeover for deals financed with stock. I employ methods to address possible econometric concerns with selection and omitted variable bias.