Geographic overlap and acquisition pairing

Research Summary: This study examines the role of geographic factors in explaining acquisition pairing using a novel conditional logic methodology. Drawing from information asymmetry arguments regarding acquisition decisions, we theorize that geographic overlap between the acquirer and potential targets’ businesses and operations enables the acquirer to collect more information about the potential target through its multiple business operations that are geographically proximate. We also demonstrate moderating boundary conditions. In particular, we examine acquiring firm characteristics, acquiring firm size and geographic dispersion, which both weaken the relationship between geographic overlap and acquisition pairing. Likewise, we examine two dyadic distance moderators, geographic distance and product dissimilarity, both of which increase information asymmetry between the acquirer and potential targets, which increases the effect of geographic overlap in facilitating acquisition pairing. Managerial Summary: Firms pursuing acquisition activities face severe information asymmetry when evaluating potential targets. This study investigates how acquiring firms leverage geographic conditions to overcome information asymmetry and choose targets that they can better evaluate. We find that acquirers are more likely to choose targets that have subsidiaries or business operations overlapping in the same states as the acquirers themselves. This is particularly true for small acquirers, which lack resources and capabilities to seek external assistance, and acquirers that have business operations in more concentrated locations. We also find that acquiring targets with geographically overlapped business operations is especially salient when the target's headquarters is distantly located from the acquirer or when the target offers dissimilar products from the acquirer.     

National corporate governance institutions and post‐acquisition target reorganization

We examine the characteristics of national systems of corporate governance to theorize about the nature of the shareholders' and employees' interests when it comes to reorganization, under the assumption that the firm is coalitional in nature. We argue that corporate governance institutions prevalent in both the host and the target country of the merging firms enable or constrain the ability of the acquirer to reorganize the target. Using a cross‐national dataset of corporate acquisitions and post‐acquisition reorganization, we found support for our predictions that stronger legal protection of shareholder rights in the acquirer country compared to the target country increases the acquirer's ability to restructure the target's assets and leverage the target's resources, while the protection of employee rights in the target country restricts the acquirer's ability to restructure the target's assets and redeploy resources to and from the target. Copyright © 2009 John Wiley & Sons, Ltd.     

Intra‐industry diversification and firm performance

We study how intra‐industry product diversity affects firm performance by analyzing the implications of expanding a firm's product line within its core business. We conjecture that increases in product diversity initially undermine performance because of negative transfer effects but then improve it due to economies of scope. We further theorize that this U‐shaped effect of product diversity becomes more pronounced as the firm increases the intensity of its technology investment, yet is likely to be attenuated by the firm's accumulated experience with intra‐industry diversification. Data on 156 U.S.‐based software firms operating from 1990 to 2001 furnish support for these conjectures. Our study advances emerging research on intra‐industry diversification by underscoring some of its contingent performance effects. Copyright © 2013 John Wiley & Sons, Ltd.     

Resource complementarity and value capture in firm acquisitions: The role of intellectual property rights

Extant literature holds that firm acquisitions create value through innovation if the knowledge bases of the acquirer and the target complement each other. Little is known about the value that patents associated with a target's knowledge convey to the acquirer, i.e., their value in securing market exclusion and freedom to operate in R&D. We argue that such property rights hold preemptive power allowing firms to capture the value from combining complementary technologies and to realize gains from trade in strategic factor markets. Our results for a sample of 1,428 acquisitions indicate that—controlling for technological value—acquired preemptive power is an important determinant of the acquisition price, particularly when the acquirer is technology intensive and acquired patents are highly related to the acquirer's knowledge base. Copyright © 2013 John Wiley & Sons, Ltd.     

Who leaves,where to,and why worry? employee mobility,entrepreneurship and effects on source firm performance

We theorize that the value provided by the firm's complementary assets has important implications for the exit decisions of employees and their subsequent effects on the firm's performance. Using linked employee‐employer data from the U.S. Census Bureau on legal services, we find that employees with higher earnings are less likely to leave relative to employees with lower earnings, but if they do, are more likely to create a new venture than join another firm. Employee entrepreneurship has a larger adverse impact on source firm performance than moves to established firms, even controlling for observable employee quality. Our findings suggest that in knowledge intensive settings, managers should focus on tailoring compensation packages to help minimize the adverse impact of employee entrepreneurship, particularly among high performing individuals. Copyright © 2011 John Wiley & Sons, Ltd.     

Technological overlap,technological capabilities,and resource recombination in technological acquisitions

The performance of technological acquisitions depends heavily on the overlap between the knowledge bases of the target and acquirer. We argue that overlap is best viewed as two distinct constructs: target overlap, the proportion of the target's knowledge base that the acquirer already possesses, and acquirer overlap, the proportion of the acquirer's knowledge base duplicated by the target. Each affects the value created from the firms' technological capabilities differently due to absorptive capacity, knowledge redundancy, and organizational disruption. Further, the low quantity of innovations observed in acquisitions with low target overlap may conceal an offsetting increase in their novelty. Copyright © 2013 John Wiley & Sons, Ltd.     

Acquisition Motives and the Distribution of Acquisition Performance

Research summary: I examine how acquisition motives relate to the distribution of post‐acquisition performance. I argue that acquisitions motivated by operating synergies have the potential to experience greater gains than acquisitions driven by financial synergies but are harder to value and implement, making them more uncertain. Using SEC filings, conference calls and press releases to capture acquisition motives, I find that acquirers pursuing operating synergies are more likely to experience highly positive and highly negative long‐term returns than acquirers pursuing financial synergies. I also find that acquisition experience and geographic proximity to targets soften acquirers' extreme downside outcomes in operating synergy acquisitions. My theory and results suggest that approaches that emphasize average outcomes for acquirers and use industry classifications to capture acquisition motives may be incomplete. Managerial summary: Managers engage in acquisitions for various reasons. In this study, I find that reasons related to operating synergies (e.g., revenue growth through new product offerings or cost savings through economies of scale) are more likely to result in extreme high and low performance outcomes for the acquiring firm compared to reasons related to financial synergies (e.g., diversification of cash flow streams). In addition, I find that the acquirer's prior acquisition experience and the geographic proximity between the target and acquirer help soften the extreme low performance outcomes related to operating synergies. Copyright © 2017 John Wiley & Sons, Ltd.     

Rent appropriation of knowledge‐based assets and firm performance when institutions are weak: A study of Chinese publicly listed firms

Research summary : A firm's strategic investments in knowledge‐based assets through research and development (R&D) can generate economic rents for the firm, and thus are expected to affect positively a firm's financial performance. However, weak protection of minority shareholders, weak property rights, and ineffective law enforcement can allow those rents to be appropriated disproportionately by a firm's powerful insiders such as large owners and top managers. Recent data on Chinese publicly listed firms during 2007–2012 were used to demonstrate that the expected positive relationship between knowledge assets and performance is weaker in transition economies when a firm's ownership is highly concentrated and its managers have wide discretion. Moreover, rent appropriation by insiders was shown to vary with the levels of institutional development in which a firm operates. Managerial summary : Investing in knowledge‐based intangible assets (e.g., R&D) is an important value‐creation activity for the firm. Such value creation process can be facilitated by large shareholders and powerful managers, who can then take an advantageous position with critical insider information on these valuable intangible assets and therefore enjoy more opportunities to appropriate more value from them, leaving less value for other minority shareholders. The value distribution becomes increasingly skewed against minority shareholders when the institutional protection for them is weak. Indeed, in a large sample of Chinese publicly listed firms, we found that R&D investment becomes less positively associated with firm financial performance with the presence of large shareholders, high managerial equity, or CEO/Chairman duality, especially in Chinese provinces with weak institutional development. Copyright © 2016 John Wiley & Sons, Ltd.     

Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes

This article investigates how alliance portfolio composition affects young firms' outcomes. Drawing on signaling theory, we propose how alliance portfolio composition—number, functional domains (R&D, manufacturing, and marketing), and single‐purpose or multi‐purpose nature of alliances within the portfolio—may affect a firm's likelihood of achieving a liquidity event (IPO or acquisition). We study 8,600 U.S.‐based, VC‐backed firms during the period of 1990 to 2002 from 10 industry sectors. We find that alliance portfolios (to a certain extent) increase a firm's liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi‐function alliances within portfolios. Copyright © 2013 John Wiley & Sons, Ltd.     

How to improve acquisition performance: The role of a dedicated M&A function,M&A learning process,and M&A capability

How to improve the performance of mergers & acquisitions (M&A) continues to be a confounding issue. We show that a dedicated M&A function is a new phenomenon that is positively related to a firm's M&A performance and M&A learning process. Moreover, we find that an M&A learning process (involving articulation, codification, sharing, and internalization) helps build up an M&A capability, which in turn is positively related to a firm's overall M&A performance. We use survey data from a sample drawn from the M&A activities of German firms to test our arguments. Ltd. Copyright © 2015 John Wiley & Sons, Ltd.     

Foreshadowing as Impression Management: Illuminating the Path for Security Analysts

Research summary: Managers can disclose information to security analysts as a form of impression management, but doing so is problematic because competitors can use that same information at the expense of the firm. We identify an impression management technique we call foreshadowing, which refers to hinting about future potential strategic activity. Foreshadowing provides information of value to analysts that can influence their evaluations of a firm, but not so much information as to put the firm at a competitive disadvantage. We hypothesize and find that managers who foreshadow acquisition announcements receive fewer analyst downgrades following the announcements, especially when there is more analyst uncertainty about the firm. We also hypothesize and find that analysts' responses to foreshadowing positively influence the likelihood that managers eventually acquire other firms. Managerial summary: Security analysts are often suspicious when firms announce acquisitions as those announcements are cumbersome to analyze on short notice and raise questions about managerial motivations that might not represent the best interests of the firm. We find that managers can improve analyst reactions to acquisition announcements by disclosing some information of value to analysts—specifically by hinting that an acquisition could occur in the future. We refer to such hints as foreshadowing. Foreshadowing entails giving analysts information to reduce their suspicions and facilitate their analyses, but not so much information as to degrade the firm's competitive information advantage over other firms. Foreshadowing also allows managers the option to reconsider actually executing the acquisition if analysts respond negatively to its possibility. Copyright © 2017 John Wiley & Sons, Ltd.     

Pawn to Save a Chariot,or Drawbridge Into the Fort? Firms' Disclosure During Standard Setting and Complementary Technologies Within Ecosystems

Research summary: W ithin an ecosystem, standard setting coordinates development of complementary technologies across firms. But each firm can itself own multiple of these complementary technologies. We study how a firm's own complementary technologies influence its disclosure inclination during standard setting. We identify a tradeoff: disclosure increases value‐creation of the firm's non‐disclosed complementary technologies, but also heightens expropriation risk. Using data on the U.S. communications equipment industry 1991–2008, we show that the firm's complementary technologies increase its disclosure inclination when its technological areas are less crowded, but decrease such inclination when there are SSO members with strong expropriation abilities. Findings stress that disclosure involves but a piece of the firm's portfolio; a systemic perspective of the entire portfolio provides a more comprehensive picture of value‐creation during standard setting . Managerial summary: W hy should a firm disclose its key technology to participate in standard setting within an ecosystem? We urge managers to think beyond “disclosing to ensure compatibility with other firms' complementary technologies within the ecosystem” as a motivation, to also consider how disclosure affects the firm's own complementary technologies within its portfolio. Disclosure in one technological area makes the firm's nondisclosed complementary technologies in other areas more valuable to itself, especially with fewer rivals competing in these other areas. But disclosure also renders the firm susceptible to losing these complementary technologies to rivals, especially when rivals have strong expropriation abilities. Analyzing disclosure decisions by communication equipment firms, we show that this tradeoff is indeed a relevant consideration in managers' strategic calculations when participating in standard setting . Copyright © 2017 John Wiley & Sons, Ltd.     

Integration capacity and knowledge‐based acquisition performance

Even though knowledge‐based acquisitions (KBAs) are common, their performance often lags expectations due to difficulties during integration. Building on Penrose’s foundational ideas that managers limit firm growth, we outline a theoretical model that explores how an acquirer’s integration capacity mediates the impact of acquirer and target characteristics (influenced by contextual conditions) on the performance of KBAs. Our theoretical model, based on research consistent with the resource‐based view and resource orchestration, suggests the success of acquisitive growth rests on the quality and quantity of an acquirer’s managerial talent. This contributes to research by identifying conditions where acquisitions can provide a means of growth. Additionally, it provides managers a means to assess whether an identified target firm is within an acquirer’s integration capacity.     

Customer retention: A source of value for serial acquirers

Customer retention, in most cases, is regarded as an indicator of acquisition performance, but factors influencing it have rarely been studied in the serial acquirer context. As a consequence, this paper presents a model of the linkage between serial acquirers and customer retention by drawing on serial acquirer and customer relationship marketing and management literature. The paper proposes that the serial acquirers' focus on retaining acquired firms' business customers per acquisition deals may enhance the post-acquisition value. Furthermore, serial acquirers' acquisition experience (skills), managerial overconfidence/hubris, own customers' behaviour and technological context are identified to impact the customer retention of the acquired firm. Moreover, two dual-purpose variables—acquired firms' customer experience and acquired firms' customer relationships—are proposed to moderate the effects of serial acquirers' acquisition experience (skills), managerial overconfidence/hubris, own customers' behaviour and technological context on acquired firm customer retention and also to autonomously influence acquired firms' customer retention. The implications for serial acquirers and practice are discussed.     

Stakeholder Orientation and Acquisition Performance

Research summary : In this article, we study how a firm's stakeholder orientation affects the performance of its corporate acquisitions. We depart from prior literature and suggest that orientations toward employees, customers, suppliers, and local communities will affect long‐term acquisition performance both directly and through its interactions with process characteristics, such as preacquisition relatedness and postacquisition integration. Analyses of data on a sample of 1884 acquisitions show overall a positive association between acquirers' stakeholder orientation and acquisition performance. In addition, we find support for a positive moderation of business relatedness on the performance impacts of stakeholder orientation. Structural integration has a similarly positive moderation effect only for some of the stakeholder categories. Managerial summary : Does collaboration with stakeholders during an acquisition pay off in terms of performance? The results of this research show that it is worth engaging stakeholders during the M&A process, but that the efficacy of involvement practices may depend on the type of stakeholders and the characteristics of the acquisition. While acquiring firms that take account of suppliers and local communities consistently overperform in their acquisitions, the inclusion of employees might be not beneficial (and even harmful) when the target firm operates in a dissimilar business or when managers do not plan to maintain it as a separate entity. Copyright © 2017 John Wiley & Sons, Ltd.     

Cross‐border acquisitions by state‐owned firms: How do legitimacy concerns affect the completion and duration of their acquisitions?

Research summary: Cross‐border acquisitions may raise legitimacy concerns by host‐country stakeholders, affecting the acquisition outcomes of foreign firms. We propose that theorization by local regulatory agencies is a key mechanism that links legitimacy concerns with acquisition outcomes. Given that theorization is time consuming and its outcome is uncertain, we argue that state‐owned foreign firms experience a lower likelihood of acquisition completion and a longer duration for completing a deal than other foreign firms. Moreover, we introduce a set of firm characteristics (target public status, target R&D alliances, and acquirer acquisition and alliance experiences) that may affect the threshold level of legitimacy, thereby altering the proposed relationships. Our framework and findings provide useful implications for institutional theory on its core concept of legitimacy. Managerial summary: Cross‐border acquisitions by state‐owned foreign firms may lead to national security concerns and thus debates and discussions among local regulatory agencies. We argue that such institutional processes may reduce the likelihood of acquisition completion and prolong the duration of acquisition completion. Using cross‐border acquisitions in the United States, we find that acquisitions by state‐owned foreign firms are not less likely to be completed than acquisitions by other foreign firms, but they take more time to be completed. Moreover, state‐owned foreign firms are less likely to complete an acquisition when the target firm has more R&D alliances. However, their acquisition experience and alliance experience in the host country increase the likelihood of acquisition completion, whereas their alliance experience alone shortens the acquisition duration. Copyright © 2016 John Wiley & Sons, Ltd.     

Factors influencing wealth creation from mergers and acquisitions: A meta-analysis

This study analyzes the empirical literature concerning the influence of various factors on shareholder wealth creation in mergers and acquisitions using a multivariate framework. Overall, results indicate that while the target firm's shareholders gain significantly from mergers and acquisitions, those of the bidding firm do not. Findings also indicate that the use of stock financing has a significant impact on the wealth of both the target and bidding firms' shareholders. The presence of multiple bidders and the type of acquisition influence the bidders' return, while regulatory changes and tender offers influence the targets' returns. The paper also provides a comparison of our findings with that of previous narrative reviews and discusses their implications from the viewpoint of managers and researchers.     

The effect of board human capital on the performance of technical alliance investments

Despite boards of directors’ prominent involvement in strategic alliance (SA) decisions in practice and reports from news media, there is relatively little academic research exploring the board's value for a firm's technical SA investments involving a technical transfer or R&D, which are characterized by a high level of uncertainty, information asymmetry, and extreme complexity. Anchored in the resource dependence theory, this study aims to address this important issue by examining how board of directors contribute their human capital, in the form of relevant strategic experience, may mitigate the core challenges managers face when pursuing technical SAs and thereby influencing their outcomes. Our empirical results show that when outside directors hold more extensive alliance experience, they can better execute their consulting function and improve the firm's technical alliance performance. In addition, directors with experience specifically related to technical alliances also have a positive effect on performance. Last, we find that the impact of alliance experience on technical alliance performance is positively moderated by the size of directors’ prior affiliated companies and their share ownership in the focal firm.     

Mind the gap: The interplay between external and internal actions in the case of corporate social responsibility

Research summary : We explore the effect of the interplay between a firm's external and internal actions on market value in the context of corporate social responsibility (CSR). Specifically, drawing from the neo‐institutional theory, we distinguish between external and internal CSR actions and argue that they jointly contribute to the accumulation of intangible firm resources and are therefore associated with better market value. Importantly, though, we find that, on average, firms undertake more internal than external CSR actions, and we theorize that a wider gap between external and internal actions is negatively associated with market value. We confirm our hypotheses empirically, using the market‐value equation and a sample comprising 1,492 firms in 33 countries from 2002 to 2008. Finally, we discuss implications for future research and practice. Managerial summary : Companies often accumulate intangible assets by taking internally and externally oriented CSR actions. Contrary to popular beliefs, the data show that they undertake more internal than external ones: firms do more and communicate less. How does a potential gap (i.e., a misalignment) between internal and external CSR actions affect a firm's market value? We find that although together (the sum of) internal and external actions are positively associated with market value, a wider gap has negative implications. In other words, firms do not realize the full benefits of their internal actions when such actions are not externally communicated to key stakeholders, and to the investment community in particular. This negative association with market value is particularly salient in CSR‐intensive and the natural resources and extractives industries. Copyright © 2015 John Wiley & Sons, Ltd.     

Good learners: How top management teams affect the success and frequency of acquisitions

We develop new theory and hypotheses on how a firm's top management team learns from acquisition experience, why, in consequence, the composition of the team is crucial, and how this affects acquisition frequency and success. We focus on the diversity of the top team and argue that heterogeneous teams, as compared to homogenous ones, acquire less but benefit more from their acquisition experience and are more successful with their acquisitions because they avoid mis‐transferring their experiences. We tested our hypotheses on acquisition frequency and success using longitudinal data on more than 2,000 acquisitions by 25 Dutch companies over four decades (1966 to 2006). Copyright © 2013 John Wiley & Sons, Ltd.