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The impact of M&A on the R&D process: An empirical analysis of the role of technological- and market-relatedness

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Abstract

Using information on 31 in-depth cases of individual M&A deals, we show that technological and market-relatedness between M&A partners distinctly affects the inputs, outputs, performance and organisational structure of the R&D process. While the findings in the literature on the effect of M&A on R&D are quite mixed, we can sharpen results by analysing data at the level of the R&D process. This comes at the price of a smaller sample and more qualitative data, for which caution in the interpretation is necessary. M&A between partners with ex-ante complementary technologies result in more active R&D performers after the M&A. In sharp contrast, when merged entities are technologically substitutive, they significantly decrease their R&D level after the M&A. Moreover, R&D efficiency increases more prominently when merged entities are technologically complementary than when they are substitutive. These two findings on the R&D level and the performance support the scope economy effect of M&A, on the one hand, and reject the scale economy effect of M&A, on the other. Next, for cases in which partners were active in the same technological fields before the M&A, the reduction of R&D is more prominent, while the R&D efficiency gain is smaller if merged entities were rivals in the product market prior to their merger than if they were non-rival. This suggests that rival firms reap little technology gains from mergers.

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... As shown in This difference in trends across renewable energy technologies can be at least partly explained by differences in maturity, but some common factors may explain the decline in renewable energy patenting, such as low natural gas prices and cuts in renewables subsidies in some EU countries. In solar PV, it has been argued that China's dominance may hinder solar energy innovation: benefiting from lower costs, Chinese producers displaced American, German and Japanese firms that produced more expensive solar panels but were also more innovative (Carvalho, Dechezleprêtre and Glachant, 2023 [25]). More generally, reduced innovation activity may be a symptom of increased M&A , which is the result of a highly competitive sector (see below). ...
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... This attractiveness is likely due to the acquiring firm's aim to reduce or eliminate competitive threats from close rivals possessing unique technology and, thus, considerable market power (Gans & Stern, 2003;Grimpe & Hussinger, 2014). Moreover, integrating the unique technology of a close rival can directly enhance the acquirer's competitive edge in that product market space (Bena & Li, 2014;Cassiman et al., 2005). ...
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... Due to the inherent nature of technological resources, the potential synergies in technological acquisitions not only become more private and unique but also contribute to the highly varied valuations of these synergies (Chondrakis, 2016;Grimpe and Hussinger, 2014;Sears and Hoetker, 2014). We focus on the technological characteristics of paired firms that may significantly influence the valuation of synergies because a paired-firm analysis of resource characteristics-rather than an individual-firm analysis-provides a more accurate prediction of acquisition outcomes (Cassiman et al., 2005;Cloodt et al., 2006;Makri et al., 2010;Wang and Zajac, 2007). ...
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... However, as overlap increases, the post-merger innovation performance will decrease after a certain point because too much similarity results in knowledge redundancy and fewer opportunities to innovate. As a result, studies have suggested an inverted-U shape relationship between the similarity of knowledge bases and an acquiring firm's ability to take advantage of its target firm's knowledge base for subsequent knowledge creation outcomes (Ahuja and Katila, 2001;Cassiman et al., 2005). However, this inverted U-shape relationship between knowledge similarity and post-merger innovation performance is not robust across different contexts (Higgins and Rodriguez, 2006;Uhlenbruck et al., 2006). ...
Article
Purpose Drawing on the literature on technological acquisition and the knowledge-based view , this study examines how technological overlap between acquiring and target firms influences acquisition premiums. We further explore how the resulting synergies are contingent on the dynamic characteristics of the target firm, specifically its technology clockspeed and industry munificence. Technology clockspeed indicates the pace of technological evolution, reflecting internal dynamic resources, while industry munificence represents the abundance of external resources. These boundary conditions illustrate the dynamics of synergies, explaining their moderation effects on acquisition premiums. Design/methodology/approach We analyze a sample of 369 technological acquisitions by publicly traded U.S. firms between 1990 and 2011. To test our hypotheses, we used the ordinary least squares regression model with robust standard errors clustered by acquiring firms. In the robustness checks, we applied the generalized estimating equations to account for non-independent observations in our sample and verified that the results were robust to an alternative two-way clustering approach. Findings We suggest that a low level of technological overlap between an acquiring firm and its target firm leads the acquiring firm to offer a high acquisition premium because of the expected synergistic potential that evolves from combining two distant technological bases. We further find that this effect is contingent on the target firm's technology clockspeed and industry munificence. Specifically, the negative effect is amplified when target firms exhibit a rapid pace of technological evolution, whereas it is weakened when target firms operate in highly munificent industries characterized by robust growth and abundant resource flows. Research limitations/implications This study has several limitations, but it offers opportunities for future research. First, our sample is limited to domestic acquisitions between U.S. publicly traded firms, which may restrict generalizability. Cross-border acquisitions could reveal different dynamics, as technology leakage and national security concerns might make technological overlap a more sensitive factor. Additionally, private firms were not included, and their distinct strategic considerations could provide further insights. Future research could explore post-acquisition data to validate these synergies and expand the scope to include international contexts and private firms for a comprehensive analysis. Practical implications Our findings highlight important implications for managers in technology sector acquisitions. This study underscores the need for a thorough evaluation of target firms to avoid misjudging synergies. Low technological overlap can heighten expectations for value creation, making it crucial for executives to accurately assess potential synergies to prevent overestimation. Managers should consider both internal resources and external industry conditions when evaluating synergies. Ultimately, these insights help managers offer informed prices that reflect true strategic synergies, adopting effective valuation practices to mitigate risks of financial overpayments and poor post-merger performance. Social implications The social implications of our findings emphasize the broader impact of acquisition decisions on innovation and competition within the technology sector. By ensuring accurate valuation and avoiding overpayment, companies can allocate resources more efficiently, fostering sustainable growth and innovation. This diligent approach can reduce the risk of corporate failures. Originality/value This study makes two key theoretical contributions. First, it identifies technological overlap as a critical determinant of acquisition premiums in technological acquisitions, addressing gaps in the literature that focused on CEO characteristics and managerial attention. Second, it expands the theoretical framework by highlighting the dynamic nature of synergies, influenced by the target firm's technology clockspeed and industry munificence. By integrating both acquiring and target firm characteristics, this study provides a relational perspective on value creation, explaining why firms pay high premiums and offering a more comprehensive understanding of the strategic motivations in technological acquisitions.
... This attractiveness is likely due to the acquiring firm's aim to reduce or eliminate competitive threats from close rivals possessing unique technology and, thus, considerable market power (Gans & Stern, 2003;Grimpe & Hussinger, 2014). Moreover, integrating the unique technology of a close rival can directly enhance the acquirer's competitive edge in that product market space (Cassiman et al., 2005;Bena & Li, 2014). ...
... Furthermore, acquiring unique and proprietary technology from a close product market rival can more directly reinforce the acquirer's pre-existing competitive advantage in that product market space. In case the acquirer and the target sell similar products to the same set of customers, integrating the unique technology of the target into the acquirer's current product business is arguably more straightforward and effective (Cassiman et al., 2005;Bena & Li, 2014). Therefore, the strategic value of acquiring firms with unique technology portfolios is particularly pronounced for competitors within the same market space, underscoring its importance in strengthening market position and competitive advantage. ...
... The authors thoroughly validate this approach for assessing product market overlap and rivalry, amongst others by showing that companies with the highest product similarity to a focal firm align with the competitors identified by managers in the focal firm's 10-K management discussion and analysis section. This measure facilitates the evaluation of product market overlap and rivalry between prospective acquirer and target firms, identifying potential for product market synergies (e.g., Cassiman et al., 2005). Table A.3 in the Appendix highlights mergers and acquisitions in our dataset with the most significant product market overlaps between acquiring and target firms. ...
... On the one hand, some researchers propose that M&A can provide enterprises with complementary innovation resources, expand the knowledge stock of enterprises, and reduce the risk and cost of innovation [13]. Meanwhile, M&A integration is conducive to expanding the scale of innovation and realizing economies of scale and scope in R&D [14], which enhances the innovation level. On the other hand, some studies have observed that corporate M&A weakens competition within the industry and between upstream and downstream sectors, thereby reducing R&D investment and hindering technological innovation [11]; meanwhile, M&A may create a scenario in which companies accumulate more debts, and the increased debt will compel companies to reduce R&D investment [15,16]. ...
... Second, from the perspective of technological M&A in the lithium battery industry, such strategies provide external research and development resources to the company, which enables synergistic innovation effects through the collaboration of external and internal research and development, thereby enhancing R&D efficiency [12,14]. External R&D effectively complements internal R&D. ...
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... To observe potential effects, we differentiated between technology-motivated and non-technologymotivated acquisitions, that is, acquisition motive (Cassiman et al., 2005). Lastly, at the market level, we included environmental uncertainty. ...
... Sixth, we used the acquirer's innovativeness before the acquisition (Covin and Slevin, 1989) and the acquirer's and the start-up's technological complementarity (vs. similarity) (Cassiman et al., 2005;Puranam and Srikanth, 2007) as further variables to estimate potential effects on our dependent variable. Including these variables does not change the direction and significance of our results. ...
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... One is the selection mechanism; it is more efficient for companies with poor innovation capabilities to acquire innovation by acquiring companies with substantial expertise or ready-made patents than a direct investment in independent innovation (19). Cassiman et al. (20) argues that the principal merger party will purposefully select target firms that possess their missing technological knowledge so that they can update their existing knowledge after the technology acquisition. The study conducted by Chen (21) shows that there is a very important role in the development of new ideas and the existing knowledge base of firms in enhancing innovation core competitiveness after M&A. ...
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... Additionally, the sample includes the Four Asian Tigers, which occupy a unique position in the region. Furthermore, Malaysia, Thailand, the Philippines, and Indonesia, often referred to as the "Tiger Cub Economies, " have experienced steady growth, albeit at a slower pace than the Four Asian Tigers since the 1950s [16]. These countries exhibit distinctive developmental characteristics, characterized by a high level of digitalization coupled with steady economic growth 6 . ...
Article
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... And finally, the fourth; other than for the purpose of acquiring valuable technological assets of the target firm, M&A acquisitions may also be driven by the willingness of the acquirer firm to strengthen its position within the arena of technological competition (Cassiman et al., 2005;Grimpe and Hussinger, 2008). Firms may strategically use patents to pre-empt rivals from patenting substitute inventions (fencing patents), or as bargaining chips in cross-licensing negotiations and IP litigations (block to play) (Cappelli et al., 2018;Cohen et al., 2000). ...
... The process of enterprises absorbing knowledge from outside was classified into four stages: acquisition, absorption, transformation, and application, and pointed out that absorptive capacity is a dynamic ability that can continuously internalize external knowledge and skills [23]. When companies face technical difficulties, mergers and acquisitions become the fastest way to make up for related defects [24]. To fully realize the value of mergers and acquisitions, it is necessary to absorb the technical assets of the target company and improve the innovation ability of the acquired company. ...
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... New R&D fields and sources (Cassiman et al., 2005) Inter-firm Knowledge Distance (Cui et al., 2020) 3% 13% ...
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... Secondly, the merges and acquisition are conducive to the level of patent output, the number of citations per patent, and the subsequent innovation [33]. Finally, resources integration after merges and acquisition will bring technical scale effect and synergy effect, to enhance enterprise innovation performance [34], creating a virtuous circle. ...
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... However, they produce an intriguing dilemma in how acquirers internalize the newly obtained knowledge and capacities. In M&A, acquirers absorb target firms' knowledge bases to expand their own and merge them with their internally accumulated capacities to ultimately create high value added [8,9]. However, firms may not succeed in absorbing the knowledge base through M&A or may even suffer a performance decline owing to the excessive costs associated with them [10][11][12]. ...
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We perform an event study on 2824 cases of domestic mergers and acquisitions (M&A) that were disclosed in the Korean domestic stock exchange and took effect between 2002 and 2015. We focus on Korean capital markets to define the factor variables affecting the disclosure effect of M&A in high-tech industries and the effect of disclosure on long-term performance. We find the following. First, the disclosure effect of M&A benefits acquirers’ shareholder wealth; this effect is more pronounced for high-tech firms than for non-high-tech firms. Second, M&A of high- and non-high-tech firms harm acquirers’ shareholder wealth via the disclosure effect. Finally, M&A between high- and non-high-tech firms negatively affect long-term firm performance. However, acquirers that are mature high-tech firms have a positive effect on long-term performance. This result affirms that organizationally mature firms adapt better to highly specialized technologies and knowledge that are not yet internalized as corporate routines owing to their learned capabilities and breadth of experience. This study provides a significant novel perspective on high-tech M&A by emphasizing the financial performance of firms involved in them.
... Furthermore, controlling for amongst others the technology similarity between acquirers and targets which has been shown to drive M&As (Ahuja and Katila 2001;Cassiman et al, 2005;Bena and Li, 2014), interaction effects at the deal level illustrate that firms with unique technology are particularly targeted by close competitors in the product market as measured by the overlap in the 10-K product descriptions of firms (Hoberg and Phillips, 2016). For close product market rivals (75 th percentile of product market overlap), the odds of M&A transaction incidence are 4 times higher for targets with unique technology versus targets with less differentiated technology (75 th versus 25 th percentile of technology differentiation). ...
... Vertical M&A involves upstream or downstream enterprises in the same industry chain. The acquirer is capable of obtaining complementary technologies and thus improving the innovation performance (Audretsch, 1995;Veugelers, 2005). Furthermore, GI includes two types (i.e., cleaner production and end-of-pipe) (Zhang et al., 2022a(Zhang et al., , 2022b. ...
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How heavily polluting enterprises achieve sustainable development has become an urgent issue to be solved. Based on the data of Chinese heavily polluting listed enterprises during the period of 2010–2020, this paper adopts the probit method to examine how heterogeneous environmental regulations affect green merger and acquisition (GMA) decision, and propensity score matching and difference-in-differences method to explore innovation performance of GMA. The findings are as follows: (1) Command-and-control environmental regulation (CMCER) can promote GMA, while there exists a U-shaped relationship between market-based environmental regulation (MBER) and GMA; (2) from a dynamic perspective, it turns out that GMA can promote green innovation (GI) in the first and second post-acquisition year, but this effect disappears in the third year; (3) compared with CMCER, MBER has a more pronounced positive effect on the relationship between GMA and GI; (4) heterogeneous analysis indicates that the above GMA performance is more persistent when the acquirer is state-owned, with high media attention, with high internal control or engages in vertical GMA. The findings further enrich the literature on GMA driver and performance and provide references for optimizing ER policies and promoting corporate sustainable development.
... c ,Ahuja and Katila (2001) c ,Cassiman et al. (2005) c , Cloodt et al. (2006) c , Makri et al. (2010) c Capron and Hulland (1999) a , Bahadir et al. (2008) a , Swaminathan et al. (2008) a , Fuller et al. (2002) b , Santos et al. (2008) b , Golubov et al. (2012) b , Duchin and Schmidt (2013) b , Harrison et al. (1991) c , Capron (1999) c , Ahuja and Katila (2001) c , ...
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P ast research has primarily focused on what happens after a merger. This research attempts to determine whether anticipated benefits from the merger actually accrue. We characterize the effects of observed variables on whether pairs of firms merge, vis-à-vis roommate matching, and then link these factors to post-merger innovation (i.e., number of patents). We jointly estimate the two models using Markov Chain Monte Carlo methods with a unique panel data set of 1,979 mergers between 4,444 firms across industries and countries from 1992 to 2008. We find that similarity in national culture and technical knowledge has a positive effect on partner selection and post-merger innovation. Anticipated synergy from subindustry similarity, however, is not realized in post-merger innovation. Furthermore, some key synergy sources are unanticipated when selecting a merger partner. For example, financial synergy from higher total assets and complementarity in total assets and debt leverage as well as knowledge synergy from breadth and depth of knowledge positively influence innovation but not partner selection. Furthermore, factors that dilute synergy (e.g., higher debt levels) are unanticipated, and firms merge with firms that detract from their innovation potential. Overall, the results reveal some incongruity between anticipated and realized synergy. Data, as supplemental material, are available at https://doi.org/10.1287/mksc.2016.0978.
... In a similar fashion, many successive authors built different measures of technological relatedness and applied them to companies involved in M&A processes and tried to link them to post-acquisition performances. Examples of this stream of literature can be found in the work of Cloodt et al. 33 , Cassiman et al. 34 and many others [35][36][37][38][39] . Although several studies recur the idea of this inverse parabolic behavior between relatedness and performances, results are not yet conclusive. ...
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Mergers and Acquisitions represent important forms of business deals, both because of the volumes involved in the transactions and because of the role of the innovation activity of companies. Nevertheless, Economic Complexity methods have not been applied to the study of this field. By considering the patent activity of about one thousand companies, we develop a method to predict future acquisitions by assuming that companies deal more frequently with technologically related ones. We address both the problem of predicting a pair of companies for a future deal and that of finding a target company given an acquirer. We compare different forecasting methodologies, including machine learning and network-based algorithms, showing that a simple angular distance with the addition of the industry sector information outperforms the other approaches. Finally, we present the Continuous Company Space, a two-dimensional representation of firms to visualize their technological proximity and possible deals. Companies and policymakers can use this approach to identify companies most likely to pursue deals or to explore possible innovation strategies.
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The automotive sector is important across OECD countries in terms of value-added and R&D, but is also heavily affected by the green and the digital transformations. This paper offers a novel and holistic view of the automotive sector and its surrounding ecosystem based on a combination of Inter-Country Input-Output (ICIO) tables, patent data, mergers and acquisitions (M&A) transactions, cross-country micro-distributed data and firm-level balance sheet data. It identifies the boundaries of this industrial ecosystem including connected sectors (e.g. upstream and downstream) as well as knowledge and technology providers (e.g. universities or the digital industry). The paper documents emerging trends at the geographical and technological levels and provides a comprehensive assessment of the ecosystem’s changing microstructure, with a growing role of young and digital-intensive companies. Finally, it provides recommendations for effective public policies to support the automotive ecosystem, with a focus on innovation, competition and the growth of young firms.
Article
Drawing on embeddedness and learning perspectives, we examine and extend the learning‐by‐hiring (LBH) and learning‐by‐exporting (LBE) logics to better understand the innovation activities of advanced economy multinational enterprises (AEMNEs) in a dissimilar knowledge context where cross‐national differences persist. We consider that the use of local talents manifests the LBH logic as a means of enhancing AEMNEs' local embeddedness. Likewise, third‐country exporting is underpinned by the LBE logic as a way for MNEs to leverage third‐country embeddedness. We propose that these two mechanisms act as mediators that shape and filter AEMNEs' access and integration of geographically distant knowledge for their emerging market innovation. Moreover, we predict a complementarity between employing local talents and third‐country exporting. Our findings from an analysis of AEMNEs operating in China provide support for these predictions. This study offers important implications for managing multiple embeddedness across AEMNEs' global networks in order for their innovation to flourish in emerging markets.
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The advantages of globalisation have been increasingly called into question, and protectionist tendencies have entered the stage. So what experiences have firms had after going international in an open economy over the past years? With respect to foreign investor takeovers of initially national firms, we see predominantly positive effects for acquired manufacturing firms in terms of productivity, sales and expenditures on the labour force – likely due to higher employment – in the short and long term. Looking at the results, firm size matters: positive effects are stronger among large firms. In the case of firms starting to invest abroad, positive effects are very rare and limited to short-term sales of acquiring small manufacturing firms. All in all, the largely positive evidence is generally supportive of internationalisation and thus largely contradicts the negative views sometimes present in the public sphere, though even unaffected firms may see themselves as relative losers.
Article
We investigate whether strengthened legal protection of trade secrets increases the likelihood of a firm being acquired. Stronger protection can make a firm more attractive for acquisition because of better safeguarding of trade secrets, but it may also increase information asymmetries that discourage potential acquirers. Using the staggered implementation of the Uniform Trade Secrets Act in the United States, we show that stronger trade secret protection increases the likelihood of being acquired but also changes firms’ acquisition strategies more broadly depending on the distance between acquirer and target. Compared with domestic acquirers, foreign acquirers are only half as likely to make an acquisition, and they prefer to acquire minority rather than majority stakes. Both domestic and foreign acquirers are more likely to pursue stepwise acquisitions of a target as protection increases, consistent with a real options rationale. Further investigation suggests that, whereas increased trade secret protection increases information asymmetries for all acquirers, foreign acquirers as well as domestic acquirers located further away from a target are disproportionately affected. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0066 .
Article
We study the innovation performance of serial acquirers. We further examine whether managerial ability influences the relationship between acquisition frequency and innovation performance. The emerging behavioral theory suggests that high-ability managers would pursue innovative opportunities via frequent acquisitions. We employ a sample of acquirers using 6,477 firm-year observations over the 2006-2016 period and find frequent acquirers have higher innovation performance relative to non-frequent acquirers. We employ two novel measures of innovation performance, namely, innovation premium and shadow option premium. Innovation performance is the financial effectiveness of a firm's innovation activities. Managerial ability enhances the relationship between acquisition frequency and innovation performance. Moreover, the acquisition frequency enhances the relationship between managerial ability and innovation performance. We find innovative firms are more likely to be frequent acquirers. Our results are consistent with the emerging behavioral theory of the firm. Managers are likely to seize innovative opportunities promptly via frequent acquisitions, and thus, frequent acquirers are more likely to have higher innovation performance relative to non-frequent acquirers. There appears to be a potential causal cycle from greater managerial ability to a greater acquisition frequency to a higher innovation performance.
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Objective: The objective of this study is to investigate the impact of external growth on firm's performance, with the aim of verify the changes that performance may have before and after M&A operation. Theoretical Framework: In this topic, the main concepts and theories that underpin the research are presented. Efficiency theory, Value theory stand out among theories that better justify reasons why shareholders choose to deal with M&A, and thus provid a solid basis for understanding the context of the investigation. Method: The methodology adopted for this research comprises regression analysis of Return of assets of selected firms. Data collection was carried out through CapitalIQ5 platform based in firms that belong to MENA region and carried out M&A operations between 01/01/2022 and 31/12/2022 Results and Discussion: The results obtained revealed the global evolutions of effect on the short term of the M&A operations on the companies’ performance, represented by the RoE, is globally negative by the linear hypothesis considered. In the discussion section, these results are in lign with general expectations of the operations that are basically long term. Research Implications: The practical and theoretical implications of this research proove the negative short term impact of the M&A operations on financial performance of firms which allowed us to judge that a study spread over time will lead us to more meaningful conclusions. Originality/Value: This study contributes to the literature by trying to study the impact of M&A opperations on financial perfomance in theoretical and empircal ways. The relevance and value of this research are evidenced by using regressions and t test statistics in order to deduct the impact of M&A operations.
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Dari buku ini dapat pelajari konsep-konsep manajemen strategi yang berhubungan dengan merger dan akuisisi pada perusahaan farmasi dan bioteknologi disertai berbagai studi kasus pada perusahaan dunia.
Article
How does greenfield versus M&A FDI establishment mode influence intangible asset creation in the parent companies of Chinese MNEs undertaking overseas knowledge sourcing/strategic asset-seeking types of FDI? We hypothesise that while springboard type cross-border acquisitions provide opportunities for the rapid addition of locally embedded competence-creating foreign subsidiaries, challenges in developing intra-MNE knowledge diffusion channels may frustrate integration and thus retard subsequent growth of parent firms’ intangible assets. Greenfield R&D FDI, by contrast, may initially lack local embeddedness but holds out the potential for superior intra-MNE linkages and thus reverse knowledge diffusion to the MNE parent. Our results, based upon propensity score matching and difference in difference models comparing CMNE parent outcomes for FDI projects over the 2003–2018 period, support this argument. We discuss implications for mainstream international business theorising, including springboard theory, which largely overlooks greenfield establishment mode as a means of rapid firm-level catch-up for emerging market MNEs.
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Despite being a key feature of the globalising world since the 1980s, the patterns and relationships between acquirer and target firms in cross‐border mergers and acquisitions (M&As) have only gained attention in recent years. By examining the data between 1998 and 2018 through multinomial logistic regression models, this paper investigates the goodness of match on technological intensity (the closeness of technological capabilities) between acquirer and target firms and the effects of geographical, cultural and institutional proximity in global cross‐border M&As in manufacturing sectors. Our results suggest that firms are more likely to acquire overseas counterparts with similar levels of technological intensity in manufacturing. Moreover, geographical proximity is significant in the M&As of target firms in low‐tech and medium‐low‐tech sectors, while cultural and institutional proximity matter for cross‐border M&As among medium‐high‐tech and high‐tech firms. High‐tech acquirer firms in advanced economies tend to acquire their high‐tech counterparts located in larger economies, while technological intensity is more important for high‐tech acquirer firms based in non‐advanced economies, as the closeness of technological knowledge with potential target firms allows them to generate potential synergies and overcome cultural gaps and foreignness in distant host countries.
Conference Paper
This study emphasizes the assessment of efficiency and the degree of operating efficiency of mergers and acquisitions in the pharmaceutical industry worldwide. This industry encounters various challenges such as expiring patents, the rise of genetics pharmaceuticals, the entrance of biotechnology companies in the pharmaceutical market, the increasing research and development expenses, government regulations of the pharmaceutical industry, distribution channels, and drug prices. All these challenges result in an intensely competitive environment in which pharmaceuticals suffering from shortcomings (e.g., operational and/or financial inefficiencies) are not easy to catch up with the competition. Mergers and acquisitions are major activities to overcome shortcomings and achieve growth. Mergers and acquisitions have been widely used in the pharmaceutical industry for many years and are expected to accelerate. The objective of this work is to identify whether mergers and acquisitions between pharmaceutical companies can be successful and to highlight the most favourable consolidations. The assessment of mergers and acquisitions is realized through conventional and stochastic data envelopment analysis approaches. The empirical analysis draws on a sample of 371 pharmaceutical companies. The original sample was extended by 870 possible combinations between firms. Our empirical analysis reveals a positive impact of mergers and acquisitions on the efficiency of pharmaceutical companies.
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We examine the effect of climate change risks (CCR) on firms' decision of engaging in mergers and acquisitions (M&A) and M&A performance. In this study we use the responses by firms on ‘ climate change‐related risks and opportunities ’ of the Carbon Disclosure Project (CDP) survey and 1372 deals of US listed firms during 2010–2020. Consistent with risk vulnerability theory, our evidence indicates that firms with higher CCR have a lower probability of engaging in M&As. After controlling for possible endogeneity, our results also indicate that if acquirers with higher climate change risks choose to engage in M&A, it significantly reduces the announcement returns. These findings suggest that extant measures of climate change risks should be rethought when evaluating M&A efficiency. More broadly, our paper provides causal evidence that managers need to integrate CCR into their formal risk management systems to avoid unsuccessful M&As.
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We develop a novel framework to explain how the unique properties of out‐licensing enable R&D reconfiguration in the context of technology acquisitions. Out‐licensing is an attractive R&D strategy following acquisitions as it expands opportunities for resource reconfiguration to outside the organization by using external partners while at the same time allowing firms to continue to benefit from the technology, both financially and strategically. We also propose that the positive relationship between technology acquisitions and out‐licensing is weaker when firms cannot determine the full value potential of their R&D due to uncertainty or when they have high availability of short‐term financial slack resources. Using a sample of bio‐pharmaceutical firms, the result of a 2SLS fixed‐effect regression that accounts for the potential endogeneity of technology acquisitions provides support for our theoretical framework.
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Technology convergence (TC), in which technological innovation occurs by integrating at least two or more existing technologies into hybrid technologies, has been a growing innovation pattern in recent decades. Facing substantial and accelerated technological changes, it is important for technology-based firms to identify TC patterns in pursuing competitive strengths. However, most studies do not consider multi-TC with technical emergence. This research thus develops an anticipation methodology based on the network theory and association rule mining (ARM) for early identification of multi-TC patterns associated with emerging technology classes from patent data in the smart health industry. First, a technological knowledge flow network is built for subsequent analyses using smart health related patent data. Then, core-periphery analysis is used to identify peripheral technology classes which may become influential in the future. Several technical emergence indicators are developed to evaluate emergence scores of identified peripheral technology classes. Finally, ARM is used to discover intriguing multi-TC associated with emerging technology classes. We conclude that the research results are useful for R&D managers for early discovery of emerging multi-TC patterns to explore potential technological opportunities.
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With the rise of startup industries, mergers and acquisitions (M&A) have recently gained prominence as a successful exit strategy. To address the limitation of previous research that focused solely on post-M&A performance, this study focuses on identifying M&A patterns by providing a taxonomy on startup M&A cases. This study gathers M&A transaction data from the Crunchbase website, as well as information on both acquired and acquiring firms. We then calculate the similarities and differences between the two to characterize the M&A types. K-means clustering has been used to identify patterns, along with extensive exploratory data analysis and visualizations. As a result, five clusters have been identified: technology-focused field expansion, location-based, needs-based & scale up, for synergy, and potential-focused M&As. Our study contributes to existing literature in that it is, to our knowledge, the first to provide data-driven taxonomy for M&A patterns, attempting to provide general understanding of how M&As occur in practice.
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This study empirically examines how digital M&A affects firm innovation using data from Chinese listed companies from 2006 to 2019. The results show that digital M&A promotes firm innovation, and our findings also suggest that digital M&A enables firms to break away from technology path-dependence to achieve radical innovation and digital innovation. The analysis of different types of digital M&A shows that the innovation effect of vertical digital M&A is smaller than that of horizontal digital M&A. Vertical digital M&A significantly increases industry concentration and may change the competitive structure of the market; the innovation effect of cross-border digital M&A is smaller than that of domestic digital M&A, which may be related to the negative moderating effect of cultural and institutional distance between China and the host country, as well as the restriction of cross-border data flow.
Chapter
Acquisitions are among the most powerful tools for achieving corporate growth. Carried out well, acquisitions can provide a strong platform for growth and survival. Carried out badly, acquisitions lead to quick decline and failure. It is therefore crucial to examine when acquisitions constitute the right tool to execute firm’s growth strategy and how to manage them effectively.
Article
Quid pro quo policies, mainly in foreign partial acquisitions of state-owned enterprises (SOEs) in China, have been controversial due to the corresponding forced technology transfer for market access. Whether and how quid pro quo affects SOE innovation has received limited attention. This study develops a model to analyze how government intervention in SOEs’ social responsibility and the cost advantage of multinational enterprises (MNEs) affect SOE innovation during partial acquisitions. The model shows that increases in SOEs’ social responsibility in industries strongly characterized by public goods and significant technical disparities compared with MNEs and reductions in SOEs’ social responsibility in industries with intense competition decrease SOEs’ relative control. Due to MNEs’ cost advantage, they can often gradually gain control of joint ventures, which weakens SOEs’ innovation resources and independence. The results imply that even if quid pro quo brings technology to SOEs, it is not conducive to SOE innovation; therefore, the government should liberalize quid pro quo.
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This article investigates how a firm’s foreign equity share affects its likelihood of strategic alliances with local firms, discussing the benefits and costs of such strategic alliances. Analysing a panel dataset of Korean firms, we find the inverted U-shaped relationship between foreign equity share and the likelihood of alliance involvement. We also find that the relationship depends on the types of alliance partner and industry. This relationship is relatively steeper when the foreign-owned firm collaborates with a local firm in a different industry. The negative effect of foreign equity share on the likelihood of strategic alliances dominates in high-technology industries.
Article
The primary goal of this research is to identify how and whether knowledge distance influences multinational enterprises’ innovation performance. Although international business scholars have acknowledged the importance of knowledge distance, the research question is under-explored. Based on the distance approach, this study provides a theoretical foundation for knowledge distance and empirically examines its impact on the innovation performance of multinational enterprises engaging in cross-border acquisitions. Furthermore, we investigated whether internationalization breadth and depth moderate knowledge distance-innovation performance. We examined Chinese-listed firms that made international acquisitions from 2010 to 2016 and found a negative relationship between knowledge distance and innovation performance. We also discovered that internationalization breadth and depth moderate the negative relationship between knowledge distance and innovation performance. Our study contributes to international business studies by providing the theoretical foundation and empirical results of knowledge distance in the international business context.
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This research examines an integrated theoretical model that explains how strategies for participating in the market for corporate control (acquisitions and divestitures) affect internal control mechanisms and, together, influence internal and external innovation. Nine out of ten hypotheses received support, with results showing that firms engaging in acquisitions and divestitures emphasize financial controls, de-emphasize strategic controls, and thereby produce less internal innovation. Furthermore, these firms are likely to seek external innovation to gain short-term benefits in competitive advantage. We conclude that engaging in the market for corporate control strongly affects the context in which innovation is framed, the control mechanisms employed, and the design and process of innovation.
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This paper investigates whether the recent wave of corporate restructuring in the United States has had a negative impact on research arid development investment by industrial firms. Using a newly constructed sample of about 2500 manufacturing firms from 1974 to 1987, I examine three major classes of restructuring events: leveraged buyouts and other "going private" transactions, mergers and acquisitions in general, and substantial increases in leverage.The major conclusions are first, that leveraged buyouts do not occur in R&D-intensive sectors or firms and cannot therefore be having much of an impact on R&D spending; rather, the evidence seems consistent with an agency cost and cash flow-driven model of buyouts. Second, major increases in leverage are followed by substantial declines in the R&D intensity of the firms in question, and the effect takes at least three years to work through. Finally, although the evidence on acquisitions by publicly traded firms is mixed, the basic conclusion is that any declines in the R&D intensity of acquiring firms relative to their past history appear to be associated with the leverage structure of the transaction rather than the acquisition itself.
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How should we understand why firms exist? A prevailing view has been that they serve to keep in check the transaction costs arising from the self-interested motivations of individuals. We develop in this article the argument that what firms do better than markets is the sharing and transfer of the knowledge of individuals and groups within an organization. This knowledge consists of information (e.g., who knows what) and of know-how (e.g., how to organize a research team). What is central to our argument is that knowledge is held by individuals, but is also expressed in regularities by which members cooperate in a social community (i.e., group, organization, or network). If knowledge is only held at the individual level, then firms could change simply by employee turnover. Because we know that hiring new workers is not equivalent to changing the skills of a firm, an analysis of what firms can do must understand knowledge as embedded in the organizing principles by which people cooperate within organizations. Based on this discussion, a paradox is identified: efforts by a firm to grow by the replication of its technology enhances the potential for imitation. By considering how firms can deter imitation by innovation, we develop a more dynamic view of how firms create new knowledge. We build up this dynamic perspective by suggesting that firms learn new skills by recombining their current capabilities. Because new ways of cooperating cannot be easily acquired, growth occurs by building on the social relationships that currently exist in a firm. What a firm has done before tends to predict what it can do in the future. In this sense, the cumulative knowledge of the firm provides options to expand in new but uncertain markets in the future. We discuss at length the example of the make/buy decision and propose several testable hypotheses regarding the boundaries of the firm, without appealing to the notion of “opportunism.”
Article
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This paper examines the impact of acquisitions on the subsequent innovation performance of acquiring firms in the chemicals industry. We distinguish between technological acquisitions, acquisitions in which technology is a component of the acquired firm's assets, and nontechnological acquisitions: acquisitions that do not involve a technological component. We develop a framework relating acquisitions to firm innovation performance and develop a set of measures for quantifying the technological inputs a firm obtains through acquisitions. We find that within technological acquisitions absolute size of the acquired knowledge base enhances innovation performance, while relative size of the acquired knowledge base reduces innovation output. The relatedness of acquired and acquiring knowledge bases has a nonlinear impact on innovation output. Nontechnological acquisitions do not have a significant effect on subsequent innovation output. Copyright © 2001 John Wiley & Sons, Ltd.
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This paper reports a search for general tendencies among models that look at spillovers in innovative activities. A number of inferences are detailed that appeared in a wide class of settings, including stochastic racing models, (static) stochastic models, dynamic and static commitment models, and strategic investment models. They include: •- the role of a critical spillover level that drives the comparison between symmetric cooperative and non-cooperative efforts;•- the disincentive effect of symmetric spillovers for strategic investments and the positive effect of such spillovers for investment commitments and cooperative efforts;•- the fact that innovative output in many cases is highest when appropriation is neither perfect nor free, although circumstances also emerge where any lack of appropriation will discourage innovative efforts.
Article
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Economists have recently grown interested in doing research on research or R & D, as it is called in industrial circles. Several studies have tested Schumpeter's hoary hypothesis that large firms are responsible for most industrial inventive activity.1 Few of these studies, however, suggest why this hypothesis is apparently valid for some industries and not for others. And statistical studies going beyond this question, to try to relate R & D expenditures to firm profit expectations and the availability of funds as in other investment decisions, are rare (Mansfield, 1964; Mueller, 1967).
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The purpose of this report is to contribute to the analysis of two questions. Should a merger control system take into account efficiency gains from horizontal mergers, and balance these gains against the anti-competitive effects of mergers? If so, how should a system be designed to account for efficiency gains? The report is based on a report to the European Commission. To help answer the two questions we start with an extensive review of the relevant economic research, including both theoretical and empirical studies of mergers and merger control. Next, we review the current legal practice in seven OECD jurisdictions. Finally, we propose a merger control system, emphasising the central role of informational limitations. Based on our conclusions from the empirical literature that efficiencies may need to be assessed on a case-by-case basis, we construct an information-economising twostage decision framework for evaluating mergers. In a first stage, notified mergers are assessed using routine tools with modest information requirements. Mergers that do not pass the first stage test are subject to further investigation, including an efficiency
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This paper reports on a multi-method study of knowledge transfer in international acquisitions. Using questionnaire data we show that the transfer of technological know-how is facilitated by communication, visits & meetings, and by time elapsed since acquisition, while the transfer of patents is associated with the articulability of the knowledge, the size of the acquired unit, and the recency of the acquisition. Using case study data, we show that the immediate post-acquisition period is characterized by imposed one-way transfers of knowledge from the acquirer to the acquired, but over time this gives way to high-quality reciprocal knowledge transfer.© 1999 JIBS. Journal of International Business Studies (1999) 30, 439–462
Article
Historically, acquisition scholars and practitioners have adopted a choice perspective which portrays the corporate executive analyzing acquisition opportunities as a rational decision maker. This paper suggests that the choice perspective be supplemented with a process perspective which recognizes the acquisition process itself as a potentially important determinant of activities and outcomes. A series of research propositions is offered suggesting how four impediments present in the process itself might affect acquisition outcomes.
Article
Interest in capturing external technology is clearly rising within the R&D management community, and companies are exploring many forms of business relationships with external technology sources. However, industry practitioners have experienced a number of problems, the most important being the failure to recognize and manage technology sourcing as a strategic business process. The author offers a conceptual model of this increasingly important business process, and presents a number of useful industry practices, identified by an IRI working group, for planning and organizing search efforts, evaluating merits of identified opportunities, negotiating and finalizing agreements, managing collaborative R&D activities, and ensuring organizational learning and improvement.
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The concept of relative plant productivity and its measurement using census LRD data productivity and changes in ownership of manufacturing plants, Donald Siegel takeovers and corporate overhead, with Donald Siegel leveraged buyouts, with Donald Siegel US and foreign mergers and LBOs, 1988-90 the dismantling of conglomerate firms airline mergers, with Moshe Kim.
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A convenient procedure for the mononitration of carbazole and 9-alkylcarbazoles using CAN in CH3CN in presence of SiO2 is reported. The results with 9-acetyl, 9-benzoyl and 9-benzenesulphonylcarbazoles are also discussed.
Article
This chapter discusses the perceptible movement of empirical scholars from a narrow concern with the role of firm size and market concentration toward a broader consideration of the fundamental determinants of technical change in industry. Although tastes, technological opportunity, and appropriability conditions themselves are subject to change over time, particularly in response to radical innovations that alter the technological regime, these conditions are reasonably assumed to determine inter-industry differences in innovative activity over relatively long periods. Although a substantial body of descriptive evidence has begun to accumulate on the way the nature and effects of demand, opportunity, and appropriability differ across industries, the absence of suitable data constrains progress in many areas. It has been observed that much of the empirical understanding of innovation derives not from the estimation of econometric models but from the use of other empirical methods. Many of the most credible empirical regularities have been established not by estimating and testing elaborate optimization models with published data but by the painstaking collection of original data, usually in the form of responses to relatively simple questions.
Article
Historically, acquisition scholars and practitioners have adopted a choice perspective which portrays the corporate executive analyzing acquisition opportunities as a rational decision maker. This paper suggests that the choice perspective be supplemented with a process perspective which recognizes the acquisition process itself as a poten- tially important determinant of activities and outcomes. A series of research propositions is offered suggesting how four impediments present in the process itself might affect acquisition outcomes.
Article
This paper examines how value is created in horizontal mergers and acquisitions. More specifically, it examines the impact of post-acquisition asset divestiture and resource redeployment on the long-term performance of horizontal acquisitions. The data come from a detailed survey of acquiring firm managers and cover 253 horizontal mergers and acquisitions that were initiated by European and U.S. firms in manufacturing industries for the period 1988–1992. This study incorporates insights from the cost efficiency and resource-based theories to propose a model of the effects of asset divestiture and resource redeployment on long-term acquisition performance. Overall, our results show that both asset divestiture and resource redeployment can contribute to acquisition performance, with, however, a significant risk of damaging acquisition performance when the divested assets and redeployed resources are those of the target. Copyright © 1999 John Wiley & Sons, Ltd.
Article
The paper focuses on several research questions: How do the firms differ in terms of their strategic objectives for foreign acquisitions? What are the determinants of ‘success’ of acquisition? What are the differences between the American and German firms in terms of their acquisition strategies and successes? Our special interest was to get a closer look into the technological motive of the foreign acquisitions. This made a two‐step procedure necessary. A first survey of 86 firms had to identify those acquisitions which were motivated by technological interests through a questionnaire. Findings: There are four classes of companies with different motives for acquisitions: Market oriented entrepreneurs, Short‐term profit seekers, Technological acquirers, Preemptive market protectors. The second survey investigated the process and the results of acquisitions with a special view on the role of research and development through 60 interviews in 30 acquisition cases in both acquiring and acquired units. Findings: A network of variables explains the success. The most important are context variables (uncertainty, cultural differences), size of both firms, low degree of formalization, expertise, and lack of conflicts about technological philosophy.
Article
This study provides a conceptual framework and an empirical methodology to assess the extent of value creation in acquisitions. Arguments are presented to examine why related acquisitions might not outperform unrelated acquisitions on average. New measures of value creation are developed which resolve the difficulties with measures used by earlier researchers. In addition, the influence of the classification scheme used to identify acquisition types, and the impact of the relative size of the target to the bidder, on the measurement of the extent of value creation, is examined. The empirical results indicate that value is created in both unrelated and related acquisitions. Further, the data do not appear to indicate that related acquisitions create more value than unrelated acquisitions on average.
Article
The behaviour of key inventors after the acquisition of their company is examined. Key inventors are identified on the basis of their patenting output. They account for a large number of their company’s high-quality patents. The analysis of 43 acquisitions shows that key inventors leave to a substantial extent their company or they significantly reduce their patenting performance after the acquisition. Factors influencing the behaviour of key inventors after acquisitions are identified. Implications for the effective management of acquisitions as well as suggestions for further research are outlined.
Article
We model the distortions that internal power struggles can generate in the allocation of resources between divisions of a diversified firm. The model predicts that if divisions are similar in the level of their resources and opportunities, funds will be transferred from divisions with poor opportunities to divisions with good opportunities. When diversity in resources and opportunities increases, however, resources can flow toward the most inefficient division, leading to more inefficient investment and less valuable firms. We test these predictions on a panel of diversified U.S. firms during the period from 1980 to 1993 and find evidence consistent with them.
Article
Three major motives have been suggested for takeovers: synergy, agency, and hubris. Existing empirical evidence is unable to clearly distinguish among these motives probably due to the simultaneous existence of all three in any sample of takeovers. This paper suggests a way of distinguishing among these competing hypotheses by looking at the correlation between target and total gains. It is argued that this correlation should be positive if synergy is the motive, negative if agency is the motive, and zero if hubris is the motive. The empirical results show that synergy is the primary motive in takeovers with positive total gains even though the evidence is consistent with the simultaneous existence of hubris in this sample. It is also found that agency is the primary motive in takeovers with negative total gains.
Chapter
Providing a complete portal to the world of case study research, the Fourth Edition of Robert K. Yin's bestselling text Case Study Research offers comprehensive coverage of the design and use of the case study method as a valid research tool. This thoroughly revised text now covers more than 50 case studies (approximately 25% new), gives fresh attention to quantitative analyses, discusses more fully the use of mixed methods research designs, and includes new methodological insights. The book's coverage of case study research and how it is applied in practice gives readers access to exemplary case studies drawn from a wide variety of academic and applied fields.Key Features of the Fourth Edition Highlights each specific research feature through 44 boxed vignettes that feature previously published case studies Provides methodological insights to show the similarities between case studies and other social science methods Suggests a three-stage approach to help readers define the initial questions they will consider in their own case study research Covers new material on human subjects protection, the role of Institutional Review Boards, and the interplay between obtaining IRB approval and the final development of the case study protocol and conduct of a pilot case Includes an overall graphic of the entire case study research process at the beginning of the book, then highlights the steps in the process through graphics that appear at the outset of all the chapters that follow Offers in-text learning aids including 'tips' that pose key questions and answers at the beginning of each chapter, practical exercises, endnotes, and a new cross-referencing tableCase Study Research, Fourth Edition is ideal for courses in departments of Education, Business and Management, Nursing and Public Health, Public Administration, Anthropology, Sociology, and Political Science.
Article
This paper presents evidence on changes in operating results for a sample of 76 large management buyouts of public companies completed between 1980 and 1986. In the three years after the buyout, these companies experience increases in operating income (before depreciation), decreases in capital expenditures, and increases in net cash flow. Consistent with the operating changes, the mean and median increases in market value (adjusted for market returns) are 96% and 77% from two months before the buyout announcement to the post-buyout sale. The evidence suggests the operating changes are due to improved incentives rather than layoffs or managerial exploitation of shareholders through inside information.
Article
This paper examines elements of an efficiency-based theory of the multiproduct firm. The theoretical framework developed by Williamson to explain vertical integration is extended to explain diversification. The proposition is advanced that a cost function displaying economies of scope has no direct implications for the scope of the business enterprise. However, if economies of scope are based upon the common and recurrent use of proprietary knowhow or the common and recurrent use of a specialized and indivisible physical asset, then multiproduct enterprise (diversification) is an efficient way of organizing economic activity. These propositions are first developed in a general context and then examined in the context of diversification in the U.S. Petroleum industry.
Article
This paper describes how large, typically multi-technology corporations build up and exploit their technological capability by purchasing small, technology-based firms in order to acquire their technology. The frequency, possible causes and economic effects of this phenomenon are elaborated, based on empirical studies of Swedish industry. A new mechanism for trading technology through the trading of small firms among large firms is proposed.
Article
This survey contrasts the favorable appraisal of mergers derived from ex ante event studies to the increasingly negative findings based on ex post evaluations. The ex ante literature recognizes managerial behavior in target firms as an inefficient deterrent to mergers, but managerial behavior by bidders at least as clearly promotes excessive mergers. Accordingly, positive ex ante valuations of selloffs and spinoffs are unsurprising.
Article
This paper analyzes factors that influence firms' choice of the organizational form of strategic alliances. I consider arguments suggested by both the contractual and the competence perspectives. In order to distinguish empirically between them, I devote special attention to the role played by the similarity of partner firms' technological specialization. In the empirical section I consider a sample composed of 271 equity joint ventures, non-equity bilateral and unilateral agreements established between each other in the period 1983-86 by 67 North American, European, and Japanese enterprises from the world's largest firms in information technology industries. I examine the effects on the choice of alliance form of a measure of firms 'technological proximity based on patents count, while controlling for other variables that are usually considered in the empirical literature. The estimates of binomial and multinomial logit models support the competence-based argument that in technological alliances divergence in partners' technological specialization results in a higher propensity to use equity forms. Overall, the findings suggest that both the contractual and competence perspectives provide valuable complementary insights into the determinants of alliance form.
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Sumario: The interrelationship of diversification strategy, organizational structure, and economic performance in large American industrial corporations is the subject of this study. In addition to investigating the relative prevalence of various types of strategy and structure, the relationship between strategy and structure, and the association between these two variables and economic performance, this study will be concerned with the validation of a research method that combines the managerially meaningful but essentially descriptive concept of diversification strategy with the analytic power of statistical techniques applied to large samples
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The corporate-control market The conventional approach to a merger problem takes corporations merely as decision-making units or firms within the classical market framework. This approach dictates a ban on many horizontal mergers almost by definition. The basic proposition advanced in this paper is that the control of corporations may constitute a valuable asset, that this asset exists independent of any interest in either economies of scale or monopoly profits, that an active market for corporate control exists, and that a great many mergers are probably the result of the successful workings of this special market. Basically this paper will constitute an introduction to a study of the market for corporation control. The emphasis will be placed on the antitrust implications of this market, but the analysis to follow has important implications for a variety of economic questions. Perhaps the most important implications are those for the alleged separation of ownership and control in large corporations. So long as we are unable to discern any control relationship between small shareholders and corporate management, the thrust of Berle and Means's famous phrase remains strong. But, as will be explained below, the market for corporate control gives to these shareholders both power and protection commensurate with their interest in corporate affairs. A fundamental premise underlying the market for corporate control is the existence of a high positive correlation between corporate managerial efficiency and the market price of shares of that company.
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Eager to stay ahead of fast-changing markets, more and more high-tech companies are going outside for competitive advantage. Last year in the United States alone, there were 5,000 high-tech acquisitions, but many of them yielded disappointing results. The reason, the authors contend, is that most managers have a shortsighted view of strategic acquisitions--they focus on the specific products or market share. That focus might make sense in some industries, where those assets can confer substantial advantages, but in high tech, full-fledged technological capabilities--tied to skilled people--are the key to long-term success. Instead of simply following the "buzz," successful acquires systematically assess their own capability needs. They create product road maps to identify holes in their product line. While the business group determines if it can do the work in-house, the business development office scouts for opportunities to buy it. Once business development locates a candidate, it conducts an expanded due diligence, which goes beyond strategic, financial, and legal checks. Successful acquires are focused on long-term capabilities, so they make sure that the target's products reflect a real expertise. They also look to see if key people would be comfortable in the new environment and if they have incentives to stay on board. The final stage of a successful acquisition focuses on retaining the new people--making sure their transition goes smoothly and their energies stay focused. Acquisitions can cause great uncertainty, and skilled people can always go elsewhere. In short, the authors argue, high-tech acquisitions need a new orientation around people, not products.
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Within the diversification literature the concept of corporate coherence has been referred to as the ability of the firm to generate and explore synergies of various types. However, the empirical studies have insofar provided only approaches taking explicitly into account the product/market side of the phenomenon. The present paper operationalizes the concept of corporate coherence as a dynamic interconnectedness between the company's technological competencies and its downstream activities. It also provides some further empirical evidence on the widely discussed relationship between corporate diversification and performance. Specifically, it offers some (albeit rather weak) evidence that economic performance is positively influenced not by the degree of diversification per se, but by the ability of the company to increase its corporate coherence. Copyright 2004, Oxford University Press.
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This paper examines the effect of both geographic and industrial diversification on firm value for a sample of over 20,000 firm-year observations of US corporations from 1987-1993. Our multivariate tests indicate the average value of a firm with international operations is 2.2% higher than a comparable domestic single-activity firm, while the average value of a firm with activities in multiple industrial segments is 5.4% lower than a protfolio of comparable domestic single-activity firms.
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This paper studies redeployment of resources between target and acquiring businesses following horizontal acquisitions. The analysis draws from perspectives that emphasize the strategic importance of resources that are subject to market failure. We define a five-part typology of R&D, manufacturing, marketing, managerial, and financial resources. We show that targets and acquirers frequently redeploy resources following horizontal acquisitions, especially resources that frequently face market failure.
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This paper reviews much of the scientific literature on the market for corporate control. The evidence indicates that corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose. The gains created by corporate takeovers do not appear to come from the creation of market power. With the exception of actions that exclude potential bidders, it is difficult to find managerial actions related to corporate control that harm shareholders. Finally, we argue the market for corporate control is best viewed as an arena in which managerial teams compete for the rights to manage corporate resources.
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Theory suggests R&D intensity and acquisition activity may be either directly or inversely related. However, we know relatively little about which firms are responsible for acquisition activity in high-technology industries, which are not only R&D-intensive, but also have substantial acquisition activity in the United States. Using a panel of 217 US electronic and electrical equipment firms from 1985-93 and limited dependent variable estimation techniques, we find a substantial negative correlation between R&D-intensity and a firm's propensity to acquire. This result is surprisingly robust to numerous sensitivity tests and is significant in both the "within" and "between" dimensions of our data. Copyright 2000 by Blackwell Publishing Ltd
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In a simple model of capital budgeting in a diversified firm where headquarters have limited power, we show that funds are allocated towards the most inefficient divisions. The distortion is greater, when the investment oppotunities of the firm’s divisions are more diverse. We test these implications on a panel of diversified firms in the United States during the period 1979–93. We find that i) diversified firms mis-allocate investment funds; ii) the extent of mis-allocation is positively related to the diversity of investment opportunities across divisions; and iii) the discount, at which these diversified firms trade, is positively related to the extent of the investment mis-allocation and to the diversity of investment opportunities across divisions.