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.     

Employment Effects of Acquisitions: Evidence from Acquired European Firms

This paper examines the employment effects of acquisitions for acquired European firms, taking non-random selection of acquisition targets explicitly into account. Following the empirical firm growth literature and theories put forward in the mergers and acquisition (M&A) literature, we control for convergence dynamics in firm size and distinguish between different types of acquisitions. Empirically, we estimate an endogenous treatment model using accounting data for a newly created sample of acquired and non-acquired European firms. Our results reveal positive employment effects for different types of acquisitions indicating that M&As likely induce efficiency gains.     

The implementation of special attributes of CEO compensation contracts around M&A transactions

This study investigates how the implementation of special attributes of CEO compensation contracts is determined by both the acquisition and the acquirer features for a set of M&A deals undertaken by Canadian acquiring firms. Our findings reveal that when agency problems are higher, manifested by larger control premiums and poor firm performance, boards of directors tend to implement stronger mechanisms of incentive alignment around M&A transactions. Relying on multiple interdisciplinary logics that are activated to explain directors' ability to effectively perform their monitoring function, we show that boards are reactive rather than proactive in dealing with agency problems. Data are further interpreted in light of the unique aspects of the Canadian institutional context. Based on asymmetric risk properties of two different groups of executive compensation modes examined in this study, testing the substitution effects between alternative governance mechanisms is proposed as an interesting avenue for future research. Copyright © 2009 John Wiley & Sons, Ltd.     

Hiring new key inventors to improve firms’ post-M&A inventive output

Although merger and acquisitions (M&As) are acknowledged as an important means to access innovative assets and know-how, firms’ inventive output often declines in the post-M&A period. Financial, managerial and organizational constraints related to the M&A event contribute to inventive output declines and inventors’ departure. Prior literature treats the acquiring firm as a passive observer of invention declines. This study argues that acquiring firms can take measures by hiring new key inventors. We show that the hiring of new key inventors in the post-M&A period can counteract invention declines in two ways. First, these newly hired inventors are associated with an increase of corporate inventive output after the M&A. Second, they are also associated with an improved inventive output of inventors already working for the acquiring firm. These results suggest that an appropriate hiring policy can counteract the declining inventive output of firms in the aftermath of M&As.     

Payment choice of M&As: Financial crisis and social innovation

The payment choice of mergers and acquisitions (M&As) influences firm performance and facilitates wealth transfer to shareholders and realises synergy through stakeholders' implicit contract. This study examines the choice of payment methods and firm-level characteristics of UK M&As during the financial crisis referring to the business-to-business (B2B) market in a broader sense. Further, conceptualising social innovation as a process-outcome-value construct, this study evaluates the choice of payment methods and firm-level characteristics of M&As through the lens of corporate social responsibility (CSR). The findings suggest that a stock payment method is favoured well over a cash payment method by the acquirers of M&A firms and firms that are pursuing social innovation through CSR activities. The results further document that a volatile market affected by the financial crisis reacts to the financing choice of M&As, making a sizable impact on firms' capital structure, ownership concentration, and asymmetric information. Acquiring firms that opt for stock payment methods register a significant increase in their firm-level characteristics, such as market-to-book-value, deal value, growth, and CARs compared to the cash payment method deals.     

Determinants of layoff announcements following M&As: an empirical investigation

It is often argued that mergers and acquisitions (M&As) lead to employee layoffs. This paper examines factors that influence the probability that a layoff announcement will follow an M&A. A sample of 136 large M&As, involving U.S. targets, that occurred between 1989 and 1993 is analyzed. Analyses of this sample indicate that the probability of a layoff announcement is higher if the firms involved in the transaction are related. The probability that a layoff will be announced was not changed when the acquirer was a non-U.S. firm (cross-border transactions). Target revenue per employee before the M&A is negatively related to the probability that a layoff was announced. Target financial performance prior to the transaction and use of borrowed funds to finance the merger were not found to have an impact on the probability that a layoff will be announced. © 1998 John Wiley & Sons, Ltd.     

Mergers and acquisitions in the global food processing industry in 1986–2006

Food systems around the world experienced increased merger and acquisition (M&A) activity over the past decades. Based on a sample of 13,911M&A attempts worldwide during 1986–2006, this study provides an analysis of major determinants of M&A completion in the food processing industry. Friendly attitude, cash payment and experience with M&As emerge as strong deal facilitators. Bidding competition, pursuit of parallel transactions, target subsidiary status and acquirer public status are the most important deal breakers. Unlike the lenient antitrust approach of the Reagan administration, the 1998 UK Competition Act and various directives and regulations on food safety and quality associated with the completion of the internal European market in 1992 facilitated M&A completion. In contrast, the beginning of the Economic and Monetary Union, as marked by the introduction of the Euro in 1999, had a strong negative effect on completion likelihood. This study identifies substantial regional differences. Completion of M&As that involve Asian firms depends on distinct factors. Results for NAFTA are mostly in line with predictions derived from general economic theory, compared to other regions.     

Customer relationship management processes: How faithful are business-to-business firms to customer profitability?

Marketing academicians and practitioners have over the past decade advocated the implementation of customer equity principles within firms. This article draws on adaptive structuration theory to frame the faithfulness of firms to acquiring and maintaining customers according to their profit potential. Using survey data from 158 business units engaged in business-to-business sales, this article examines the motivational effects of market growth rate and customization requirements, and the technology and information integration capabilities of the firm as determinants of firm adherence to treating customers according to their profitability. The study finds that firms are better at maintaining customers according to their profit potential than acquiring customers according to their profit potential. Further, maintenance faithfulness appears to have more ultimate impact on firm performance. The study suggests that pursuing customer profitability has limited effectiveness unless accompanied by a broader range of initiatives aimed at making the firm more customer-focused.     

When the target may know better: Effects of experience and information asymmetries on value from mergers and acquisitions

Research summary : Extending research on the effect of experience on acquisition outcomes, we examine how the differential in previous M&A experience between the target and the acquirer affects the value they, respectively, obtain when the acquirer takes over the target. Drawing on literature about organizational learning, negotiation, and information economics, we theorize that the party with greater experience will be able to obtain more value. Furthermore, we theorize that the effect of differential M&A experience on value obtained is contingent on the level of information asymmetry the acquirer faces with respect to the target, specifically as a function of the target's product‐market scope and whether the deal is friendly. We test and find support for these predictions in a sample of 1,241 M&As over a 30‐year period. Managerial summary : Corporate strategy is about a firm's scope and development decisions and outcomes, but corporate strategizing is incomplete unless managers anticipate the moves of other economic actors. We demonstrate the importance of these points when it comes to learning to make acquisitions. Using an innovative research design and theory that enables comparison between acquirer and target gains, we show that whatever their firm's acquisition history and capabilities, acquisitive managers should mind the negotiation and other pitfalls that arise when target firms possess ample acquisition experience of their own. We also demonstrate that the effect of experience advantage, whereby the more experienced party benefits, depends on the target firm's scope and whether the deal is friendly—two dimensions that acquirers can and should take into account. Copyright © 2016 John Wiley & Sons, Ltd.     

Behind M&;As in China and the United States: Networks,learning, and institutions

Few scholars would dispute the argument that mergers and acquisitions (M&As) are different in China and the United States, but we know little about how they differ. This article reports one of the first studies that systematically compares and contrasts how M&As differ in these two countries. While prior research on M&As tends to emphasize economic and financial explanations while treating firms as atomistic actors severed from their institutional and network relations, we develop a new theoretical framework based on relational, behavioral, and institutional perspectives. We not only consider firms as learning actors embedded in network relations, but also compare and contrast their M&A patterns between China and the United States, two distinctive institutional contexts. We find that both a firm’s structural hole position and its learning orientation (exploration/exploitation) in alliances have direct and joint impacts on subsequent M&As. Further, such impacts differ across the two countries, due to their institutional disparities.     

基于大股东控制的并购财富效应研究

本文研究了存在大股东代理问题下的并购财富效应及其形成机理，通过理论分析发现，大股东发起的收购行为通常导致并购方及其关联企业的总利润减少，竞争对手的利润增加，消费者剩余减少。尽管收购活动对并购方而言没有创造价值，但并购事件依然发生。这是因为收购后控制性股东将偏袒他拥有现金流权相对较多的企业。而侵害其他企业小股东利益。本文的研究成果对制定收购监管规则及小股东保护制度有一定的参考意义。     

Mergers and acquisitions by Chinese firms: A review and comparison with other mergers and acquisitions research in the leading journals

In recent years, an increasing number of Chinese firms have been engaged in acquisitions both inside and outside of China. Nevertheless, our understanding of Chinese merger and acquisition (M&A) activity is limited because a majority of M&As in the past 100 years have been performed by firms from developed countries and it is those M&As that have been the focus of prior research. Thus this paper aims to address the following research questions: What are the new insights gained from Chinese M&A research? What are the emerging future directions of Chinese M&A research? To address those questions, this article provides a thorough literature review of the most recent M&A research in top journals and studies of M&As both inside and outside of China. Consequently, we identify both new insights from Chinese M&A research and the research gaps that Chinese M&A research needs to fulfill compared with general M&A research in top journals. We further highlight the important and unique characteristics of Chinese M&As and call for future research.     

The Information Content of Method of Payment in Mergers: Evidence from Real Estate Investment Trusts (REITs)

We provide evidence on the information content of the method of payment in mergers by examining shareholder returns in a sample of REIT mergers over the period 1994–1998. When the target firm is publicly held, we find that transactions are always stock-financed, and that acquiring firm shareholders sustain small negative returns around the announcement date. When the target is privately held, cash financing, mixed (stock and cash) financing, and placement of blocks of acquirer stock with target owners are more prevalent. Acquirer returns are positive in stock-financed mergers when the target is private, which is consistent with both the information signaling and monitoring by blockholders hypotheses. Further analysis supports the information signaling hypothesis as the dominant explanation. The effects of other explanatory variables are similar whether the target is public or private. Most significantly, acquiring shareholder returns are negatively related to the acquirer's size, but positively related to the acquirer's use of the UPREIT organizational structure. The positive wealth effects of the UPREIT structure are not fully explained as the capitalization of tax benefits.     

Declared essential patents and average total R&D expenditures per patent family

The sharp increase in SEP declarations and declaring firms emphasizes the necessity for understanding firms’ innovation investment behavior in standardization. This paper empirically investigates whether declared standard-essential patents (SEPs) and the declaring firm’s business model (operationalized as a firm’s location in the value chain) are associated with a firm’s innovation investment behavior. To this end, we measure firms’ innovation investment behavior through average total research and development (R&D) expenditures per filed patent family for publicly listed firms from 1999 to 2018. Our sample mainly includes major SEP family declarants. We rely on a binary business model taxonomy differentiating upstream and downstream firms. Within that setting, total R&D expenditures rise with increasing fragmentation of declared SEP families, suggesting that firms adjust their R&D investments to declaration developments in standard-setting organizations (SSOs). We also show that upstream firms have significantly lower total R&D expenditures than downstream firms, which could indicate structural differences in their intellectual property (IP) and R&D management processes. Our results can help SSOs and regulators better understand firms’ innovation investment behavior.     

Commercializing a radical innovation: Probing the way to the market

Needs, market structures, business models, and relationships concerning radical innovations (RIs) are unpredictable and, consequently, firms face critical challenges in commercialization. Therefore, this study examines the commercialization of RIs as a process complicated by divergent challenges. By drawing on the literature on innovation management, RIs, and the commercialization and adoption of innovations, and by analyzing six longitudinal cases, the study generates its contribution: a dynamic process model for the commercialization of RIs. The model captures the iterative and partially unpredictable commercialization process comprising transits back and forth between three main zones: strategic marketing decision making, market creation and preparation, and sales creation and development. Over this probing process, a firm faces major commercialization challenges: 1) choosing a feasible strategy in conditions of uncertainty, 2) understanding the benefits of innovation from the customer's perspective, 3) creating credibility, 4) acquiring support from stakeholders and the ecosystem, 5) overcoming adoption barriers, and 6) creating sales. For managers, the results suggest diligence in the neglected market creation and preparation zone instead of attempting rushed sales creation.     

Blocked But Not Tackled: Who Founds New Firms When Rivals Dissolve?

Research summary: This article examines the role of competitive shocks in creating opportunities for new firm foundings. I argue that the sudden dissolution of rival firms may release resources that create opportunities for firm formation, particularly among employees facing impediments to capturing value in their current organizations. Analyzing microdata from the legal services industry, I use unexpected deaths of solo‐practicing attorneys as quasi‐exogenous sources of rival dissolution. Results indicate that these shocks increase the odds of founding by about 30%, with stronger effects among attorneys with weaker social connections or higher competition for promotion. The article thus highlights the role that founders play in reallocating dissolved rivals' resources while demonstrating that founding may be an important outlet for “blocked” employees to capture value from opportunities. Managerial summary: This article finds that the shutdown and dissolution of a rival organization may spur employees to found new firms. As a consequence, managers may find it valuable to pay attention to employees' turnover intentions following the dissolution of a rival. Findings suggest that employees who are having trouble advancing in the firm may be the most likely to found a new organization when a rival dissolves, so managers may want to focus retention efforts on these individuals. To the extent that managers wish to capture customers, employees, and other resources that were formerly attached to a dissolved rival, managers may wish to be aware that they could be in competition with their own employees for these resources and opportunities. Copyright © 2017 John Wiley & Sons, Ltd.     

The role of linked legitimacy in sustainable business model development

In this paper we use legitimacy as a lens to explore how sustainable business models (SBMs) develop within and across business ecosystems. We explore legitimacy as a resource that is created through sustainable development projects. We introduce the idea of linked legitimacy as a key driver for developing SBMs both within the business ecosystem of the focal firm, and in the overlapping ecosystems of their stakeholders. Using data from three business cases we explore different ways firms build and exploit linked legitimacy and how this leads to SBM development. We suggest that linked legitimacy can cross firm boundaries as a resource to be exploited broadly by ecosystem stakeholders. Finally, we re-conceptualize the rules of engagement for developing SBMs. In our model of SBM development, each firm then takes advantage of the resource (linked legitimacy) available in the ecosystem and is free to use it opportunistically, which drives SBM development.     

Value creation by knowledge‐based ecosystems: evidence from a field study

A growing number of research and development‐driven companies are located in knowledge‐based ecosystems. Value creation by these ecosystems draws on the dynamics of single firms (interacting and partnering) as well as the ecosystem at large. Drawing on a field study of a Dutch high‐tech campus, two key sources of value creation are identified: (1) facilitation of the innovation process for individual companies and (2) creation of an innovation community. Furthermore, the coevolution of the ecosystem's business model with firm‐level business models explains why technology‐based firms join, stay in, or leave the ecosystem at a certain point in time. A remarkable finding is that ecosystem managers have to deliberately facilitate exit routes for companies that no longer fit the ecosystem in order to enhance and reinforce its business model. As such, this study suggests a dynamic capability perspective on knowledge‐based ecosystems that need to develop a business model at the ecosystem level to create sufficient innovative capacity and entrepreneurial fitness.     

When the role fits: How firm status differentials affect corporate takeovers

This study explores the implications of interfirm status differentials for firm behaviors in corporate takeover transactions. We argue that the more the status differential between two firms is aligned with expectations of their roles embedded in the specific economic activity, the easier it is for them to agree on the appropriate means to reach consensus on the transaction. Using the empirical context of the U.S. corporate takeover market, we found that the greater the status differential between an acquirer and a target, the more positively the market reacts to both the acquirer and the target upon the announcement of the acquisition deal, the more likely it is for the deal to be completed, and the more likely the acquirer is to achieve better post‐acquisition performance. Copyright © 2013 John Wiley & Sons, Ltd.