. Managers of private firms that go public through a reverse takeover mechanism - both small and large - sell overvalued equity … upon merger completion. Raising capital through equity issuance and use of equity to redeem debt is critical for survival …: they time the market when they merge with publicly traded counterparts and sell overvalued capital to investors …

Merger activity tends to peak at times of high stock prices. I examine the allocation of equity issue proceeds … conditional on the level of merger activity to shed light on the source of this empirical regularity. I find that firms do not … allocate more of the equity proceeds raised in high merger times to increase debt repayment or to increase equity payouts. This …