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Integration and autonomy in Chinese technology-sourcing cross-border M&As: from the perspective of resource similarity and resource complementarity
Abstract
In this paper, we examine the match between resource relatedness and post-merger integration on technology innovation of acquiring firms to find the rationale behind technology-sourcing cross-border mergers and acquisitions (M&As) of Chinese multinational enterprises. Using a sample of 88 Chinese technology-sourcing cross-border M&As, we find that the acquirer will improve technology innovation when greater resource similarity between the acquirer and target firms is matched with a high integration degree and a low target autonomy level. Meanwhile, the acquirer can improve technology innovation when greater resource complementarity is matched with a low level of integration degree in technology-sourcing cross-border M&As. This paper provides the acquiring firms with fresh ideas of how to make the integration decisions of technology-sourcing overseas M&As. We hope to help multinational enterprises to achieve more outstanding technology innovation performance through technology-sourcing overseas M&As in an intense global competitive environment.
... In the case of Chinese MNEs, recent studies point to the importance of resource relatedness in cross-border M&As (e.g. Chen et al., 2017), but these studies do not distinguish SAS M&As from other M&As, nor between the technological characteristics of acquired resources. More generally, research has paid only limited attention to how the specific characteristics of Chinese MNEs, in terms of their (lack of) firm-specific advantages (FSAs) and institutional environment support for innovation, affect their post-acquisition innovation performance. ...
... Studies investigating Chinese M&As point to important boundary conditions for acquisition success. At firm-level, Fisch et al. (2019) and Chen et al. (2017) suggest that resource-relatedness between acquiring and acquired firms can explain post-acquisition innovation performance, while Amendolagine et al. (2018) emphasize the role of host-country resources. For Chinese SAS M&As specifically, recent research points to the properties of the strategic assets that Chinese MNEs acquire. ...
... Fisch et al. (2019) find that knowledge-relatedness raises post-acquisition patent output, but do not further specify resource characteristics. Chen et al, (2017Chen et al, ( , 2018 show the impact of resource characteristics and their interactions with the integration approach based on the relatedness of firms' overall resources, as gleaned from previous literature (e.g. Bauer & Matzler, 2014). ...
We investigate the impact of acquiring similar or complementary technologies on the innovation performance of Chinese multinationals’ strategic asset-seeking M&As in the EU, and whether such impact is contingent upon firm-level and region-level technological gaps. Results show that technological complementarity enhances Chinese multinationals’ innovation performance. Firm-level technological gaps have a positive moderating effect for both complementary and similar technologies. Region-level gaps enhance innovation when Chinese firms acquire similar technologies, but they undermine the positive impact of technological complementarity on innovation performance. We advance understanding of Chinese MNEs’ learning scope and strategic intents in their strategic asset-seeking M&As.
... Structural similarity between firms can be seen as the similarity between the activities carried out by the firms, so it can facilitate mutual understanding and exchanging their own knowledge [9]. Previous studies have presented a number of measures to assess the structural similarity between firms from various perspectives in order to find empirical evidence on the business behavior of firms that are structurally similar to each other. ...
... Previous studies have presented a number of measures to assess the structural similarity between firms from various perspectives in order to find empirical evidence on the business behavior of firms that are structurally similar to each other. To examine how much the acquirer can improve technology innovation after carrying out cross-border Mergers and Acquisitions (M&As), resource similarity between the acquirer and the target firm has been investigated [9]. To measure the potential M&A synergies, a text-based analysis of business similarity has been performed [10]. ...
... The previous approach [5] has also recognized it and adopted a filtering method that leaves only firms classified in the same industry category. It can be quite reasonable because firms belonging to the same industry category generally tend to share many common and similar characteristics [9]. However, it fundamentally excludes firms belonging to other industry categories. ...
Technology evaluation facilitates successful implementation of a technology financing system. It is usually done with a combined approach of data-driven quantitative evaluation and expert-driven qualitative evaluation due to the labyrinthine nature of the technology, but largely relies on the qualitative judgement of experts. It naturally causes a problem that the evaluation result for the same technology varies considerably depending on who evaluates it. To enable consistent technology evaluation, a few methods have been presented to generate reference information for technology evaluation by identifying relevant firms. However, they cannot explore the detailed properties of individual technologies when building peer groups with the identified relevant firms. Since technology is the ultimate subject of evaluation, not only the similarity between firms, but also the similarity between technologies should be investigated in the process of identifying relevant firms. Therefore, this study proposes a hybrid approach, which builds peer groups by measuring both the similarities between firms and between technologies and generates reference information that enables efficient and consistent technology evaluation. It is quite common for several evaluators to be involved in technology evaluation. If the evaluation results are inconsistent, additional manual work should be performed to reconcile these inconsistent results. Therefore, the proposed approach can improve the efficiency of the technology evaluation activities by avoiding unnecessary manual work. Furthermore, by providing useful reference information to the evaluator in an automated way, it will help maintain the consistency of the evaluation result so that the result does not vary greatly depending on the evaluators.
... An important driver of takeover success is post-deal integrationthe dexterity with which two discrete firms become one. Post-deal integration is contingent on numerous factors, one of which is the resemblance in resources of merging firms (Cartwright & Cooper, 1993;Chatterjee & Wernerfelt, 1991;Chen et al., 2017;Harrison et al., 2001;Makri et al., 2010;Singh & Montgomery, 1987). Early glimpses into merging firms' resources suggest that the potential of takeover synergies is higher if combining firms have identical resources either tangibles (Chen et al., 2017;Colombo & Rabbiosi, 2014;Miozzo et al., 2016) or intangibles (Bereskin et al., 2018;Kaul & Wu, 2016;Lee et al., 2018;Maung et al., 2020). ...
... Post-deal integration is contingent on numerous factors, one of which is the resemblance in resources of merging firms (Cartwright & Cooper, 1993;Chatterjee & Wernerfelt, 1991;Chen et al., 2017;Harrison et al., 2001;Makri et al., 2010;Singh & Montgomery, 1987). Early glimpses into merging firms' resources suggest that the potential of takeover synergies is higher if combining firms have identical resources either tangibles (Chen et al., 2017;Colombo & Rabbiosi, 2014;Miozzo et al., 2016) or intangibles (Bereskin et al., 2018;Kaul & Wu, 2016;Lee et al., 2018;Maung et al., 2020). Although these studies improve our understanding of the resources similarity in mergers and acquisitions (henceforth, M&As), however, the role of reputational risk 1 in target selection from the existing (both bidders and targets are from the same industry) and new (bidders come from different industries) markets is less explored. ...
Do bidders with pre‐deal lower (higher) reputational risk select targets with lower (higher) reputational risk in the existing and new markets? Past research on the role of reputation suggests that reputable firms make conservative investment decisions to maintain their reputation. Using data from the Chinese takeover market over the time period 2010 to 2018, we examine the effect of reputational risk similarity on target selection and bidder returns. The results show that bidders with pre‐deal lower (higher) reputational risk select targets with lower (higher) reputational risk and this pattern of target selection only holds in the existing market whilst bidders entering into the new markets select targets with different levels of reputational risk. We also find that bidders with lower reputational risk earn higher announcement returns in both existing and new markets and pay fairer premiums to win the bid auction.
... Internal structure-Industrial classification [74] Investigating the effect of firm similarity on multi-dimensional competitions in the petroleum industry ...
... In the first phase, industrial classification code-based filtering is carried out. Firms that have been classified in the same industry category tend to share many common and similar features in general [30,74]. To put only those firms that have features similar to the target firm into the peer group, we select the ones that belong to the same International Standard Industrial Classification (ISIC) code as the target firm. ...
A system for technology evaluation is essential for successfully implementing a technology-based financial support system. Technology evaluation has generally relied on the qualitative evaluation performed by the relevant experts. When evaluating the technologies that a certain target firm possesses, the previous evaluation results for other firms that are similar to the target firm are used together for the purpose of improving the efficiency of the qualitative evaluation. To do this, technology evaluation institutes including, KOTEC, have presented a way to create a peer group and generate reference information in order to provide a clear guidance to the evaluators. However, the current approaches have limitations in that they cannot explore the detailed features of the individual firms. Therefore, this study proposes a systematic approach to generate reference information that facilitates efficient technology evaluation. We first create a peer group by collecting the relevant firms that have similarities with a certain target firm, and then measure the internal and external similarities between the target firm and all of the firms included in the peer group. We define the average value of similarities according to each evaluation rating as density, and finally generate the distribution and the descriptive statistics for the density as reference information. We expect that this study can contribute to improving the efficiency of qualitative evaluation work by provide practical reference information. Furthermore, the reliability of the technology evaluation will also be improved by reducing the difference in the evaluation results due to the individual differences of the evaluator.
... CATAs is a specific form of FDI: the equity of overseas target firms is acquired in order to access its technological assets (Ahuja and Katila 2001;McCarthy and Leendert Aalbers 2016). The existing literature focuses on the motivation for CATAs (Deng 2009), its implications for a firm's innovation performance (Ahuja and Katila 2001;Bertrand and Zuniga 2006;Fisch, Block, and Sandner 2019;McCarthy and Leendert Aalbers 2016), and the integration, transfer, and internalization of knowledge to acquirers from target firms (Bauer, Matzler, and Wolf 2016;Chen, Fei, and Meng 2017;Hansen, Fold, and Hansen 2016). ...
We propose an analytical framework to examine how various dimensions of proximity between home and host countries could account for the trajectories and specificities of cross-border acquisitions of technology assets (CATAs) conducted by acquirer firms in latecomer economies. As Chinese firms have been increasingly using CATAs as a mean to catch up with their counterparts in advanced economies, we referred to their acquisition records to illustrate the applicability of the proposed framework. Based on a compiled dataset of the number of CATA transactions from 2001 to 2018, this paper examines the effects of various dimensions of proximity on the spatio-temporal patterns of Chinese CATAs using negative binomial regression models. Our findings demonstrate that the difference in governance between China and host countries (institutional proximity), the size of overseas Chinese population in host countries (social proximity), and the value of import from host countries (economic proximity) have significant effects on the propensity of Chinese firms to engage in CATAs. Physical distance and cultural gap between China and host countries, however, have no significant impact on CATAs. Further examination of the results reveals that Chinese firms tend to acquire target firms outright in culturally distant host countries to reduce the risk of their overseas acquisition in CATAs. In addition, we also found that there is a dynamic relationship between different dimensions of proximity and CATAs: from the relative importance of economic proximity between 2001 and 2012 to the rising influence of social and institutional proximity between 2013 and 2018 on CATAs.
... Our samples come from the CSMAR database, which is the most authoritative database related to the statistical information of listed companies in China. Following the practice of Du et al. (2016), Chen et al. (2017), Zhang et al. (2018), and Li (2022), we set a series of criteria to screen out samples of cross-border M&A from 2006 to 2019. ...
In the economic transition process, emerging markets are recognizing the importance of accessing sophisticated technologies to green innovation. After cross-border merge and acquisition (M&A), research and development (R&D) investment has become the basic condition for acquiring mature market technologies. Many studies suggest that R&D can promote green innovation. However, in the context of cross-border M&A, the relationship between R&D and green innovation is more complicated. Based on the knowledge-based view and stakeholder theory, this paper takes 230 cross-border M&A events at Chinese enterprises as samples. The conclusions show that instead of a linear relation, the influence of R&D input on green innovation performance after cross-border M&A is in an “S-shape”; the political connection and institutional distance of enterprises play a negative role in promoting the relationship between R&D input and green innovation performance after cross-border M&A.
... The abovementioned studies measure innovation performance by patents. Chen et al. (2017) investigate the interaction between EMNEs' strategic assetseeking M&As resource relatedness and integration level on technological innovation, instead of using cumulative abnormal returns (CARs) as a proxy. Although they conclude that Chinese MNEs' innovation improves when resource similarity/complementarity is matched with different degrees of integration autonomy, CARs may not appropriately represent improvement in EMNEs' innovative capability. ...
Purpose
Emerging market multinational enterprises (EMNEs) have consolidated their global presence recently, challenging existing international business (IB) theories. One of their most significant characteristics has been the prevalence of strategic asset-seeking (SAS) mergers and acquisitions (M&As) targeting firms in developed countries. Such SAS M&As have been ascribed to the aim of acquiring or augmenting firm-specific advantages, rather than exploiting existing advantages. A literature review is needed to synthesize the growing number of academic studies and to contribute to ongoing theoretical developments on EMNEs' catch-up strategies.
Design/methodology/approach
The authors follow a standard systematic literature review approach. The authors collate academic studies on EMNEs' SAS M&As in developed markets published between 2000 and mid-2020, structuring the analysis using the logic of antecedent, process and performance outcomes.
Findings
The authors present recent research trends in terms of year, journal, theories and methods. The authors synthesize and analyze existing knowledge on EMNEs' SAS M&As and identify remaining gaps to suggest future research directions.
Originality/value
The review contributes by focusing on the key argument of current EMNE research – SAS M&As. By providing the first focused review on this topic, it provides a basis for further research on EMNEs' SAS M&As.
... Broekel and Brachert [13] measured the technology complementarity between organizations that belong to different 2-digit NACE codes in terms of their interorganizational R&D collaborations. Chen et al. [28] measured the degree between two firm's NAICS codes to evaluate the complementarity between acquiring and acquired firms, while Ma et al. [5] used the IPC classifications in patent portfolios to evaluate target firms. Wang [29] applied association analysis to mine the interactions between different USPC classes to identify potential partners with complementary technologies. ...
When considering a joint venture or merger, it is essential for firms to explore innovators with complementary technology to compensate for any internal limitations in R&D resources. In this article, we provide a framework for exploring the technology complementarity between enterprises in a quantitative manner based on text-mining patent data. A hierarchical latent Dirichlet allocation topic model identifies the technology topics hidden in patent documents along with the hierarchical structure of those topics. The technology complementarity between broad classes of technology and their subclassifications across enterprises is then measured with an improved formulation. An empirical study on three-dimensional printing illustrates the validity, reliability, and practicality of this method and the measurement formula used, endorsed by technical experts. This method can be used to identify R&D opportunities, to find appropriate acquisition targets and potential collaborators, and to support managerial decision-making with quantified information on technology complementarity.
Purpose
This study aims to identify the strategic factors and their effects on the post-cross-border acquisitions (CBA) technological innovation performance of the acquiring firms. It develops a hierarchical model to examine the interrelationship between identified strategic factors such as strategic flexibility, strategic ambidexterity, environmental dynamism, etc.
Design/methodology/approach
This study uses modified total interpretive structural modeling qualitative methodology (m-TISM) to develop a hierarchical model and conducts a Matrice d’impacts croisés multiplication appliquée á un classment (MICMAC) analysis to show the interrelationship between strategic factors affects the acquirer’s post-CBA technological innovation performance. It determines the autonomous, dependent, linkage and independent strategic factors. It further uses comparative case analysis to empirically examine the strategic factors in real-time CBA situations.
Findings
This study shows the m-TISM-based hierarchical model highlighting the interrelation, level of autonomy, dependence and linkage among strategic factors affecting the acquirer’s post-CBA technological innovation performance. It suggests that strategic factors such as environmental dynamism, R&D competence, innovation capability and technological capability are largely autonomous and have significant driving power, whereas strategic ambidexterity and strategic flexibility are the connecting factors. post-M&A integration is the governing factor for technological innovation performance in CBA.
Research limitations/implications
The strategists and practitioners could evaluate the key strategic factors having significant driving power for strategy formulation and implementing efficient policies. By implementing the m-TISM model acquiring a firm’s post-CBA performance can be enhanced. Future researchers might utilize quantitative methods like regression and structural equation modeling in the CBA context.
Originality/value
This study uses a novel m-TISM and MICMAC approach to identify the driving and dependent factors affecting post-CBA technological innovation performance. It further provides a detailed theoretical and conceptual understanding relating to the philosophy and establishes an interrelation amongst these under-researched strategic factors in CBA.
Purpose
Technology acquisition is a common phenomenon of acquiring external knowledge, but we have a limited understanding of conditions in which the acquirer integrates the target or not. On one hand, the acquirer may have a policy to integrate the target to benefit from its prior knowledge. On the other hand, the target may face challenges in continuing its knowledge creation and the acquirer may want to provide it autonomy to not disrupt it. This paper aims to identify conditions in which targets tend to be less integrated after acquisitions, allowing them to maintain more autonomy and contribute more to knowledge creation.
Design/methodology/approach
We test our arguments in the empirical setting of the global biopharmaceutical industry using a difference-in-difference approach on a longitudinal dataset of matched patents. We examine self-cites received by patents belonging to acquirers and the targets before and after the acquisitions.
Findings
We find that, on average, the targets’ prior patents do not receive more self-cites after the acquisition. We conclude that this is because their R&D activities are disrupted, suggesting a higher level of post-acquisition integration. However, more nuanced findings reveal that it may not be the case all the time. When the target has more research experience, is international or is specialized in complementary technologies, prior patents of targets continue to receive more self-cites after the acquisition. It indicates that the targets in such conditions continue knowledge creation, suggesting a lower level of post-acquisition integration.
Originality/value
Our findings contribute to post-acquisition integration research. While post-acquisition integration downside is common, we present conditions in which such a downside may be less likely. We highlight that the context of an acquisition may be an important determinant of the extent of integration of the target. Moreover, we supplement the integration research (cultural, structural and human resource and leadership perspectives of integration) by adding a knowledge-based perspective to it. Such dynamics have important implications for acquirers and targets in deriving value from the acquisition.
Cross-border technology M&A is recognized as an important strategic decision for enterprises to acquire advanced technologies and establish international competitive advantages. However, existing research does not explain how cross-border technology M&A enterprises can obtain high innovation performance under the influence of different factors. This study uses the fuzzy set qualitative comparative analysis (fsQCA) method to construct an antecedent conditional configuration model of innovation performance after cross-border technology M&A. The configurations consist of five influencing factors, three at enterprise level (knowledge base, R&D investment, relative technology scale) two at institutional level (host country institutional quality, diplomatic relations), and this study analyses how they combine to influence innovation performance after cross-border technology M&A.
In this paper, we proposed a model of how corporate acquisition influences industrial performance by exploring industry-level and firm-level ownership characteristics in emerging markets. Based on a database of 1,934 acquisitions of listed firms in China, we examined the relationship between corporate acquisition type and industrial performance and the moderating effects of industrial and firm ownership characteristics. The study generated three major findings: 1) compared with cross-industry acquisitions, intra-industry acquisitions of firms have a stronger positive effect on industrial performance; 2) corporate ownership and industrial ownership variables exert different moderating impact on the relationship between acquisition type and industrial performance; and 3) firm ownership and industrial ownership have a joint moderating effect on the relationship between acquisition type and industrial performance. By conceptually arguing and empirically verifying how multi-level factors influence industrial performance in the context of emerging economies, we contributed to the study of the relationship between the micro-level firm acquisition and the macro-level industrial development in several distinct ways.
Purpose
Post-acquisition control is a crucial factor affecting acquisition performance. We investigate how post-acquisition control strategy affects cross-border acquisition performance of Chinese multinational enterprises (MNEs) through a configurational perspective.
Design/methodology/approach
Based on 70 cross-border acquisition cases by Chinese MNEs, we adopt fuzzy-set qualitative comparative analysis (fsQCA) to study the combined effects of strategic control, operational control, institutional distance, cultural distance, relative capacity and business relatedness on the cross-border acquisition performance.
Findings
On the basis of fuzzy set analysis of multiple interdependent factors, we identify six configurations that are conductive to achieving high cross-border acquisition performance and two configurations that relate to the absence of high performance, thus shedding light on the casually complex nature of performance drivers of acquisitions.
Originality/value
This study provides a holistic, configurational approach to investigating cross-border acquisition performance by emerging market firms. Our results provide some compelling evidence that accounts for the causal complexity of post-acquisition control strategies and acquisition outcomes in the context of emerging economies.
Based on a survey database of cross-border acquisitions by Chinese private firms, this study uses a fuzzy-set qualitative comparative analysis (fsQCA) to explore the holistic impact of acquisition ownership, organizational factors and environmental factors on acquisition performance in cross-border acquisitions. It is found that the cross-border acquisitions taken by Chinese private enterprises have four kinds of acquisition ownership strategies leading to high acquisition performance under different internal and external conditions. This study points out that ownership strategy is a key decision affecting cross-border acquisition performance and provides a variety of paths leading to the same outcome rather than just finding the linear relationship between corporate activity and performance. This study supports the assumption of equivalence, and reveals a variety of scenarios in which cross-border acquisition ownership contributes to the outcome of high cross-border acquisition performance, and further confirms the view of causal asymmetry between condition and outcome. This study reveals whether the proportion of cross-border acquisition ownership affects cross-border acquisition performance and under what circumstances is conducive to the realization of expected cross-border acquisition performance.
Based on the framework of ‘M&A size-integration process-innovation outputs’, we re-examine the relationship between M&A and post-acquisition innovation performance, and the moderating effect of post-acquisition R&D investment. Using zero-inflated negative binomial regression with data on mergers and acquisitions of 277 high-tech firms in China from 2005 to 2015, we found that M&A size has an inverted U-shaped effect on post-acquisition innovation performance. Post-acquisition R&D investment shows a significant moderating effect on this inverted U-shaped relationship, and puts the inflection point of the inverted U-shaped curve to the right from 23% to 39%. Thus, for the acquiring firm, increasing the post-acquisition R&D investment level can effectively improve its technology absorption capacity, thereby extending the positive effect interval of M&A size on its post-acquisition innovation performance.
This paper investigates the role of bilateral trade openness in technology-acquiring cross-border mergers and acquisitions (M&As) by emerging market firms (EMFs). The cross-border M&A, patents, and financial data from January 2000 to December 2013 have been utilised for empirical analyses. By analysing cumulative abnormal returns of the acquirer EMFs from Brazil, Russia, China, India, and Mexico, the value-creating nature of technology-acquiring cross-border M&As has been confirmed. In addition, the number of the patents owned by the target firms showed a positive and significant effect on the stock performance of cross-border acquirers. Finally, the bilateral trade openness significantly and positively moderated the relation between the innovation capability of the target firms and EMFs’ stock performance.
Acquisition integration is a pivotal factor in determining whether the objectives of an acquisition are achieved. In this paper, we hypothesize that the productivity of corporate scientists of acquired companies is generally impaired by integration, but that some scientists experience more disruption than others. In particular, acquisition integration will be most disruptive, leading to the most severe productivity drops, for those inventors who have lost the most social status and centrality in the combined entity. Drawing from prior literatures on the knowledge-based view of the firm, and on mergers and acquisitions, we develop hypotheses about a concise set of conditions that will lead to substantial performance drops for acquired technical personnel. We test our hypotheses, using patent application data, on a sample of 3,933 inventors in pharmaceutical firms whose companies were acquired. Results are strongly in line with our theorized expectations.
The management of technology acquisitions - acquisitions of small technology based firms by large established firms - poses a dilemma in terms of how to organize for innovation. Acquirers must integrate acquired firms in order to exploit their capabilities and technologies in a coordinated manner; at the same time, they must preserve organizational autonomy for acquired firms in order to avoid disrupting their capacity for continued exploration. In this study, we suggest that the coordination-autonomy dilemma can be better managed by recognizing that the effect of a structural form on innovation outcomes is contingent on the stage of development of the innovation trajectory of the acquired firm. Specifically, we show that structural integration lowers the hazard of new product introductions for acquired firms that have not launched any products prior to acquisition and for all acquired firms in the immediate aftermath of the acquisition, but these adverse effects disappear as the innovation trajectory evolves beyond these stages. We discuss implications for our understanding of post merger integration, and the organizational challenges of balancing exploration and exploitation in high velocity environments.
This paper introduces a knowledge-based view of corporate acquisitions and tests the post-acquisition consequences on performance of integration decisions and capability-building mechanisms. In our model, the acquiring firm decides both how much to integrate the acquired firm and the extent to which it replaces this firm's top management team. It can also learn to manage the post-acquisition integration process by tacitly accumulating acquisition experience and explicitly codifying it in manuals, systems, and other acquisition-specific tools. Using a sample of 228 acquisitions in the U.S. banking industry, we find that knowledge codification strongly and positively influences acquisition performance, while experience accumulation does not. Furthermore, increasing levels of post-acquisition integration strengthen the positive effect of codification. Finally, the level of integration between the two merged firms significantly enhances performance, while replacing top managers in the acquired firm negatively impacts performance, all else being equal. Implications are drawn for both organizational learning theory and a knowledge-based approach to corporate strategy research. Copyright © 2004 John Wiley & Sons, Ltd.
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.
We examine the impact of European Union banks’ strategic similarities on post-merger performance. We find that, on average, bank mergers have resulted in improved performance. We also find that for domestic deals, it can be quite costly to integrate institutions which are dissimilar in terms of their loan, earnings, cost, deposit and size strategies. For cross-border mergers, differences between merging partners in their loan and credit risk strategies are conducive to higher performance, whereas diversity in their capital and cost structure has a negative impact from a performance standpoint.
Asubstantive body of theory and research on the role of culture in mergers and acquisitions (M&A) suggests that cultural differences can create major obstacles to achieving integration benefits. However, the opposite view---that differences in culture between merging firms can be a source of value creation and learning---has also been advanced and empirically supported. In an attempt to reconcile these conflicting perspectives and findings, we present a model that synthesizes our current understanding of the role of culture in M&A, and we develop a set of hypotheses regarding mechanisms through which cultural differences affect M&A performance. The results of a meta-analysis of 46 studies, with a combined sample size of 10,710 M&A, suggest that cultural differences affect sociocultural integration, synergy realization, and shareholder value in different, and sometimes opposing, ways. Moderator analyses reveal that the effects of cultural differences vary depending on the degree of relatedness and the dimensions of cultural differences separating the merging firms, as well as on research design and sample characteristics. The implications for M&A research and practice are discussed.
In this paper, we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm's absorptive capacity and suggest that it is largely a function of the firm's level of prior related knowledge. The discussion focuses first on the cognitive basis for an individual's absorptive capacity including, in particular, prior related knowledge and diversity of background. We then characterize the factors that influence absorptive capacity at the organizational level, how an organization's absorptive capacity differs from that of its individual members, and the role of diversity of expertise within an organization. We argue that the development of absorptive capacity, and, in turn, innovative performance are history- or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area. We formulate a model of firm investment in research and development (R&D), in which R&D contributes to a firm's absorptive capacity, and test predictions relating a firm's investment in R&D to the knowledge underlying technical change within an industry. Discussion focuses on the implications of absorptive capacity for the analysis of other related innovative activities, including basic research, the adoption and diffusion of innovations, and decisions to participate in cooperative R&D ventures.
We explore the role of resource interactions in explaining firm performance in the context of acquisitions. While we confirm that acquisitions do not lead to higher performance on average, we do identify that complementary resource profiles in target and acquiring firms are associated with abnormal returns. Specifically, we find that the interaction between acquiring firm marketing resources and target firm technology resources positively reinforce (complement) each other. Meanwhile, the interaction of acquiring and target firm technology resources negatively reinforce (substitute) one another. Implications for management theory and practice are identified.
Integration is a difficult process, but one that is vital to acquisition performance. One reason acquirers encounter difficulties is that the integration process exhibits high levels of intrafirm linkage ambiguity – a lack of clarity of the causal link between integration decisions and their performance outcomes. We introduce the construct of intermediate goals as a mechanism that reduces intrafirm linkage ambiguity. Our structural model results, based on a sample of 129 horizontal acquisitions, indicate that the achievement of two intermediate goals (internal reorganization and market expansion) fully mediates the relationships between four integration decisions and acquisition performance.
Cultural differences are an important issue for cross-border M&A. Empirical evidence for the impact of cultural differences on M&A performance is mixed. A major reason for these inconclusive results relies on integration. One main motive for cross-border transactions is the acquisition of innovative capabilities. In a study of innovation-driven M&A in the German-speaking part of Europe, we find different effects of human and task integration on the innovation outcome after the transaction. While human integration (i.e., the creation of a shared identity and satisfaction among the employees from both organizations) is rather destructive, task integration (i.e., the transfer and sharing of resources and capabilities) is beneficial for innovation output. Furthermore, the integration-innovation performance relationship is moderated by national cultural differences. While national cultural differences have a downward curvilinear slope moderating the effect of human integration to innovation, we find a clear inverted U-shaped slope moderating the effect for task integration. Both effects indicate that cultural similarity is more beneficial in the case of innovation-driven M&A with targets in Central Europe.
We show how knowledge-based and incentive-based perspectives complement each other to explain the effects of acquisitions on the productivity of inventors from acquired firms. Incentive-based theories account for their lower productivity relative to that of inventors at nonacquired firms, and both perspectives jointly explain why their productivity converges with that of inventors from acquiring firms. Higher productivity is achieved when there is greater overlap in routines and moderate overlap in skills, and when the acquired firm is large relative to its acquirer. This study clarifies the subtle manner in which incentives and the knowledge-based view are intertwined.
In this paper, we develop a comprehensive model of M&A success. We integrate fundamental constructs of different schools and discuss their interdependencies with M&A success. Our theoretical framework was tested empirically across a sample of 106 SME transactions in the machinery, electronic, and logistic industries in the German-speaking part of Central Europe. The results of our study support the demand for an integrative perspective and theory on M&A. M&A success is a function of strategic complementarity, cultural fit, and the degree of integration. Strategic complementarity also positively influences cultural fit and the degree of integration. Cultural fit positively influences M&A success, but surprisingly has a negative impact on the speed and degree of integration. The degree of integration is positively related to speed of integration. Copyright © 2013 John Wiley & Sons, Ltd.
The performance of technological acquisitions depends heavily on the overlap between the knowledge bases of the target and acquirer. We argue that overlap is best viewed as two distinct constructs: target overlap, the proportion of the target's knowledge base that the acquirer already possesses, and acquirer overlap, the proportion of the acquirer's knowledge base duplicated by the target. Each affects the value created from the firms' technological capabilities differently due to absorptive capacity, knowledge redundancy, and organizational disruption. Further, the low quantity of innovations observed in acquisitions with low target overlap may conceal an offsetting increase in their novelty. Copyright © 2013 John Wiley & Sons, Ltd.
Mergers and acquisitions can be a mechanism used by firms to access innovative knowledge, including intellectual property, and to strengthen and expand their core capabilities. In the mergers and acquisition context, the creation of value depends on the transfer of capabilities and knowledge being carried out successfully during the post-acquisition integration process. The paper adopts this view. It examines the role of the top management and personnel who hold knowledge and skills linked to the capability of the acquired firm considered most valuable by the acquiring firm in the transfer of knowledge from the acquired firm to the acquiring firm. The paper also examines whether the impact of the retention of the acquired firm's high-value human resources (HVHR) on knowledge transfer is moderated by the degree of embeddedness of the knowledge to be transferred. Furthermore, the study identifies the factors that influence the retention of the acquired firm's HVHR. We tested the model using data from a sample of 57 domestic, related, friendly Spanish mergers and acquisitions belonging to a wide variety of industries. The results support the notion that the more embedded the knowledge, the greater the impact of the acquired firm's HVHR retention on the knowledge transfer. They also show that the autonomy granted to the acquired firm, the frequency of use of rich media among the personnel of both firms, and the acquired firm's pre-acquisition profitability are factors encouraging the acquired firm's HVHR to remain. The study contributes to the literature on knowledge transfer in mergers and acquisitions by highlighting the relevance of retention of the acquired firm's HVHR for knowledge transfer, as well as demonstrating the importance of taking into consideration the nature of the knowledge to be transferred. It also contributes to the literature on the implementation process in mergers and acquisitions by identifying factors available to managers to favor HVHR continuity in the acquiring firm or the one resulting from the merger.
Determining the appropriate level of integration is crucial to realizing value from acquisitions. Most prior research assumes that higher integration implies the removal of autonomy from target managers, which in turn undermines the functioning of the target firm if it entails unfamiliar elements for the acquirer. Using a survey of 86 acquisitions to obtain the richness of detail necessary to distinguish integration from autonomy, the authors argue and find that integration and autonomy are not the opposite ends of a single continuum. Certain conditions (e.g., when complementarity rather than similarity is the primary source of synergy) lead to high levels of both integration and autonomy. In addition, similarity negatively moderates the relationship between complementarity and autonomy when the target offers both synergy sources. In contrast, similarity does not moderate the link between complementarity and integration. The authors’ findings advance scholarly understanding about the drivers of implementation strategy and in particular the different implementation strategies acquiring managers deploy when they attempt to leverage complementarities, similarities, or both.
This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.
This study develops and tests the idea that the cross-business information technology integration (CBITI) capability of an acquirer creates significant value for shareholders of the acquirer in mergers and acquisitions (M&A). In M&A, integrating the IT systems and IT management processes of acquirer and target could generate benefits such as (a) the consolidation of IT resources and the reduction of overall IT costs of the combined firm, (b) the development of an IT-based coordination mechanism and the realization of cross-firm business synergies, (c) the minimization of potential disruptions to business operations, and (d) greater ability to comply with relevant laws and regulations and the reduction of regulatory compliance costs. We test these ideas in a sample of 141 acquisitions conducted by 86 Fortune 1000 firms. In the short run, acquirers that have high levels of CBITI capabilities receive positive and significant cumulative abnormal returns to their M&A announcements. Announcement period returns indicate that the capital markets value CBITI similarly in same-industry and different-industry acquisitions. In the long run, acquirers with high levels of CBITI capabilities obtain significantly higher abnormal operating performance. They create significantly greater value in complementary acquisitions from different industries than in related acquisitions from the same industry. The findings have important implications for M&A research and practice.
In this study, we explore seven in-depth cases of high-technology acquisitions and develop an empirically grounded model of technology and capability transfer during acquisition implementation. We assess how the nature of the acquired firms' knowledge-based resources, as well as multiple dimensions of acquisition implementation, have both independent and interactive effects on the successful appropriation of technologies and capabilities by the acquirer. Our inquiry contributes to the growing body of research examining the transfer of knowledge both between and within organizations. Propositions are developed to help guide further inquiry into the dynamics of acquisition implementation processes in general and, more specifically, the process of acquiring new technologies and capabilities from other firms.
Most traditional research on mergers and acquisitions tends to focus on the role of similarity in explaining acquisition performance. While scholars have recently begun to examine acquisition complementarity, there is still little evidence concerning how complementarity influences acquisition performance. Further, previous research has not drawn the connections between related contexts and the potential benefits from complementarity. In this article, we move the study of acquisition complementarity forward by investigating the effects of strategic and market complementarity on acquisition performance in the context of related horizontal acquisitions. We also propose that two key attributes of acquirers—strategic focus and out-of-market acquisition experience—will moderate this relationship. We investigate our research questions in the context of all 2,204 acquisitions made by publicly traded U.S. commercial banks during the 12-year period from 1989 to 2001. Our findings are generally supportive, suggesting complementarity is an important antecedent of acquisition performance, and raising important issues on the nature of acquisition research in general. Copyright © 2009 John Wiley & Sons, Ltd.
For firms seeking to strategically combine their resources with those of other firms, two popular alternative governance structures emerge: alliance or acquisition. In this paper, we propose a dyadic perspective to examine how and why configurations of two firms' resources and capabilities affect the costs and benefits associated with each governance structure. More specifically, we posit that factors such as (1) the resource similarity and complementarity between a pair of firms, (2) the combined relational capabilities of a pair of firms, and (3) the partner-specific knowledge between a pair of firms will affect the likelihood of observing that pair of firms forming an alliance vs. engaging in an acquisition. We test and find support for our hypotheses using extensive longitudinal data from a sample of the largest firms in the United States from 1991 to 2000. Copyright © 2007 John Wiley & Sons, Ltd.
Do cultural differences have an impact on the performance of M&A? Despite the widely accepted myth that they do, and in a negative way, a review of extant research provides contradictory findings. In this article, we explore reasons for this contradiction and propose solutions in the form of propositions and a theoretical framework. We begin with a brief overview of extant research on the culture-performance relationship in M&A. In light of the contradictions emerging from this review, we move on to identifying three areas of complexity explaining this confusion, and for each one, we suggest propositions to guide future research. We then summarize our argument using a theoretical framework. Because of the long-term and dynamic nature of the M&A process, we argue that instead of studying the simple performance impact of cultural differences in M&A, we should move on to thinking how cultural differences impact on the M&A process and its outcome.
Rapid technological change, growing technological complexity and shortening product life cycles increasingly force companies to source technologies externally. One means of building up competencies and fostering innovation based on external resources such as knowledge is through the acquisition of technology-based companies. However as literature and practice have shown, technologically motivated and intensive acquisitions are highly vulnerable to failure. One of the main reasons for this value destruction lies in the miscarried and inappropriate integration of the technology-based company after the acquisition.
Based on eight in-depth case studies on technology intensive acquisitions in multi-national technology-based companies this paper aims to identify the main causes of failure in internalizing external knowledge during the integration of technology intensive acquisitions. It was derived that a lack of integrative decision-making, of systemic processes and of a holistic change of both companies during the integration hinders successful knowledge sourcing through acquisitions. Based on these findings, a concept for integration planning which is tailored towards the specific characteristics of technology intensive acquisitions is proposed. This concept is embedded in the acquisition process and encompasses the development of an appropriate integration strategy and the determination, assessment and planning of the required integration projects thus fostering successful knowledge sourcing.
We examine whether pre-IPO affiliations affect post-IPO corporate events, namely acquisitions. On the one hand, newly public acquirers may benefit from their pre-IPO affiliations through residual signaling value or/and resource-related benefits. On the other hand, newly public acquirers may suffer from those affiliations when conflicts of interests arise during the post-IPO period. Equity underwriters may have incentive to promote non–value-creating acquisitions (Type II error), and venture capitalists (VCs) may have incentive to forgo strategically important acquisitions (Type I error). Drawing on a sample of 4,029 acquisitions made by 717 newly public firms, we find that on average the announcement of an acquisition by a newly public acquirer elicits a positive response from investors. The market views more favorably the acquisitions announced by newly public acquirers associated with prestigious equity underwriters, but this reaction becomes negative when the lead underwriter is retained as the acquisition advisor. The market reacts more favorably to acquisitions announced by VC-backed newly public acquirers, but only when those VCs are committed to a longer lockup period. The effects of pre-IPO affiliations on expected returns are stronger for newly public acquirers with a high intangible resource base and persist throughout the three-year post-IPO period (across each subsequent acquisition announcement). Copyright © 2010 John Wiley & Sons, Ltd.
Prior research on M&As and invention outcomes has not systematically examined the influence of two types of knowledge differences. Knowledge relatedness has typically been equated with knowledge similarity and the separate influence of knowledge complementarity has been overlooked. Similarly, studies examining innovation outcomes of M&As have typically focused on the role of technological knowledge and overlooked the influence of scientific knowledge. We develop a model of relatedness and invention performance of high-technology M&As that considers science and technology similarity and complementarity as important drivers of invention. We test the model using a sample of M&As from the drug, chemical, and electronics industries and a fine-grained measure of knowledge relatedness that distinguishes between science and technology relatedness. We find that complementary scientific knowledge and complementary technological knowledge both contribute to post-merger invention performance by stimulating higher quality and more novel inventions. This suggests that high-technology firms seeking acquisitions should search for, identify, and acquire businesses that have scientific and technological knowledge that is complementary to their own. Our results also suggest that similarities in knowledge facilitate incremental renewal, while complementarities would make discontinuous strategic transformations more likely, and that absorptive capacity research should be expanded to consider complementarities as well as similarities. Copyright © 2010 John Wiley & Sons, Ltd.
The complex phenomenon that mergers and acquisitions (M&As) represent has attracted substantial interest from a variety of management disciplines over the past 30 years. Three primary streams of enquiry can be identified within the strategic and behavioural literature, which focus on the issues of strategic fit, organizational fit and the acquisition process itself. The recent achievements within each of these research streams are briefly reviewed. However, in parallel to these research advances, the failure rates of mergers and acquisitions have remained consistently high. Possible reasons for this dichotomy are discussed, which in turn highlight the significant opportunities that remain for future M&A research.
This paper examines the effect of national cultural distance on the performance of foreign acquisitions. While some studies have argued that this effect should be negative and others that it should be positive, we argue that this depends on the level of post-acquisition integration. We hypothesize that large differences in national culture reduce foreign acquisition performance if the acquired unit is tightly integrated into the acquirer, but that they enhance acquisition performance if post-acquisition integration is limited. Analyzing a sample of 102 cross-border acquisitions by Dutch firms in 30 countries, we find strong empirical support for this hypothesis.
This paper compares cross-border acquisition with Greenfield foreign direct investment (FDI). It investigates the impact of these two FDI modes on the long-term performance of foreign subsidiaries. By focusing on the performance of the foreign affiliate, it departs from the rich survival literature and for the first time explores the precise performance of these ventures over a longer period of time. In particular, by drawing on the theory of industrial organization (IO), we empirically examine to which extent the two different forms of market entry help to explain the development of leading positions of affiliates in the host country. Our field research is based on a wide original sample of 179 manufacturing subsidiaries of foreign transnational corporations (TNCs) located in Greece. The econometric results indicate that acquisitions exhibit specific signs of excellence in terms of market share, firm size, capital intensity and product differentiation. We ascertain that at least as far as market share and capital intensity are concerned, the superiority of the cross-border acquisitions rests on both the fact that TNCs are eager to acquire the most efficient firms in the host country, and actively engage in assisting these firms in their up-grading procedures.
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.
This study examines the post-M&A innovative performance of acquiring firms in four major high-tech sectors. Non-technological M&As appear to have a negative impact on the acquiring firm's post-M&A innovative performance. With respect to technological M&As, a large relative size of the acquired knowledge base reduces the innovative performance of the acquiring firm. The absolute size of the acquired knowledge base only has a positive effect during the first couple of years after which the effect turns around and we see a negative effect on the innovative performance of the acquiring firm. The relatedness between the acquired and acquiring firms’ knowledge bases has a curvilinear impact on the acquiring firm's innovative performance. This indicates that companies should target M&A ‘partners’ that are neither too unrelated nor too similar in terms of their knowledge base.
This paper empirically examines the acquisition of a technology from a source outside the firm and its incorporation into a new or existing operational process. We refer to this key activity in process innovation as external technology integration. This paper develops a conceptual framework of external technology integration based on organizational information processing theory and technology management literature. The primary hypothesis underlying the conceptual framework is that external technology integration will be most successful when the level of interaction between the source of the technology and recipient of the technology is appropriately matched, or fit, to the characteristics of the technology to be integrated. The conceptual framework also develops other hypotheses relating to contextual factors that may also influence the success of external technology integration. A cross-sectional survey methodology is employed to test the four hypotheses of the conceptual framework, with the results indicating strong support for the fit hypothesis and general support for the contextual hypotheses. The paper closes with a discussion of the implications of this study for both theory and practice.
It is well established that heterogeneity among firms shapes their abilities to introduce process and product innovation. Moreover, few will dispute that such heterogeneity is triggered by differences in internal organizational structures, in the use of management practices, in resources available, and in the interaction with external actors. However, little is known about how firms design their boundaries and internal organizations to enable them to explore and exploit knowledge from external sources of knowledge. In addition, the innovation-search literature widely treats organizational design as being fixed across these otherwise heterogeneous firms, neglecting the investigation of how particular organizational structures and management practices fit the interaction with specific types of sources, the motivations of these sources, and with modes of external interaction. Accordingly, this special issue intends to bridge research on organizational design and architecture on the one hand, and research on firms' external knowledge search on the other, in the attempt to pave a way for a mutually beneficial dialogue.
Previous research on mergers and acquisitions has neglected the issue of speed of postmerger integration by and large. This paper argues that there are benefits and detriments associated with speed of integration. Thus, in some situations speed may be highly beneficial whereas in others it may be harmful to the success of a merger or acquisition. It is argued that the benefits and detriments of speed of integration depend on the magnitude of internal and external relatedness between the merging firms prior to the merger or acquisition
This paper examines the determinants of foreign direct investment (FDI) in research and development laboratories by 32 multinational enterprises in the pharmaceutical and electronics industries. The paper applies a dichotomous set of motives for FDI. Results from an econometric analysis of 136 laboratory investments show that relative market size and relative strength of a country's science base determine whether FDI in research and development is carried out in order to exploit existing firm-specific advantages, or in order to build up new firm-specific advantages. This holds true in similar form for Japanese, European and U.S. firms and across the two industries.© 1999 JIBS. Journal of International Business Studies (1999) 30, 1–24
Previous theoretical research has argued that national cultural distance hinders cross-border acquisition performance by increasing the costs of integration. This article tests the alternative hypothesis that national cultural distance enhances cross-border acquisition performance by providing access to the target's and/or the acquirer's diverse set of routines and repertoires embedded in national culture. Using a multi-dimensional measure of national cultural distance and controlling for other effects, we examine a sample of 52 cross-border acquisitions that took place between 1987 and 1992, and find a positive association between national cultural distance and cross-border acquisition performance.© 1998 JIBS. Journal of International Business Studies (1998) 29, 137–158
Integrating Acquired Capabilities: When Structural Integration Is (Un)Necessary
- P Puranam
- H Singh
- S Chaudhuri