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Mergers and acquisitions are frequent occurrences in the world of business. While a merged firm may convert an acquired asset to other brands, the restaurant industry tends to acquire the same brand name and does not change the name of the acquired assets. Acquisitions can prove to be a risky proposition in any industry. This study attempts to determine if a product-diversified acquisition in the restaurant industry is a value-creating decision. By comparing focused and diversified acquisitions, we try to find if focused acquisitions create value and that diversified acquisitions do not. Our initial expectation was that focused acquisitions create more shareholder value. We find that both focused and diversified acquisitions make significant positive abnormal returns for acquirers.

We examine the relationship between value, ownership, and governance structures for a set of acquisitions by Australian companies over the period of 1994–2001. We find that the propensity to diversify increases with the equity ownership of firms' directors, whereas the composition of the board, the presence of block holders and their ownership does not materially affect the decision to diversify. Board size has a positive but weak impact on the tendency to diversify. We also find no significant negative wealth effects for the shareholders of diversifying firms, although in comparison the shareholders of non‐diversifying acquirers experience significantly positive upward revisions of firm values. Although method of payment influences acquirer returns, ownership and governance do not have any impact on announcement period returns. Our results support the notion that capital markets may consider the ownership and governance structures as exerting enough influence to overcome any costs imposed by diversification strategies, hence limiting value loss to the shareholders.

The purpose of this paper is to examine the effects of the organizational slack and acquisition experience on acquisition behavior across varying environmental conditions. Drawing from behavioral theory and the threat-rigidity hypothesis, the paper explores firm acquisition behavior, in terms of type of acquisitions, before and during the recent economic downturn.

Using data on 385 acquisitions in Italy in the period 2007-2010, the paper tests hypotheses on how organizational slack and acquisition experience influence the likelihood of cross-border and diversifying acquisitions relative to domestic, non-diversifying acquisitions prior to and during the economic downturn.

Results suggest that the availability of financial resources and acquisition experience both have an important influence on acquisition behavior. Firms with greater slack and acquisition experience were more likely to make diversifying and/or cross-border acquisitions, compared to domestic non-diversifying acquisitions, particularly during an economic downturn, than firms with lower levels of slack and acquisition experience.

The paper extends behavioral theory and threat-rigidity hypothesis, highlighting their applicability to acquisition behavior across varying economic conditions. Slack resources and acquisition experience appear to be particularly salient during challenging economic times.

The purpose of this paper is to examine the existence of a diversification discount in the Australian takeover market. A sample of 446 Australian publicly‐listed firms involved in the market for corporate control was observed between 2000 and 2007. The authors examined two pre‐announcement and four post‐announcement periods, predominantly around the immediate event date, but also examined activity out to one year following the announcement.Design/methodology/approach – An event study, in this case, is used to examine abnormal returns around the announcement of a merger or acquisition. The timeframe this study intends to focus on is the period from announcement date to a time one year down the track which, although some studies may deem it “long‐term”, is still a relatively short‐term measure of performance. While many variables in acquisitions have been looked at in depth over the years, such as outcome, nature, payment method and size of deal, one area which has had considerably less attention is the area of specialisation and diversification. That is, do focus increasing (or non‐diversification) deals have different return patterns relative to focus decreasing (or diversification) deals?

The overall findings of this paper are fairly mixed, barring a few exceptions, and there does not appear to be a great deal of variation in return patterns based purely on whether the announced acquisition is non‐diversifying or diversifying in nature.

The paper is of particular value in Australia. Most of the research of diversification to date has taken place in the USA. Australia is similar to the USA in that it has a well‐developed economy based on common law principles and an active equity market, however, the existence of institutional and regulatory differences suggests that US results may not hold in Australia.

Contingency models have enabled researchers to develop system‐based decision‐making approaches to organizational studies. Two contingency decision‐making models ‐ rational and political choice ‐ have been applied to identify those organizational characteristics and strategic leadership qualities associated with acquisitive growth through “absorption” and “diversification”. A study of the International Telephone and Telegraph Company (ITT) organizational growth strategies from 1920 to 1997 reveals that senior managers adopt the rational decision‐making model when organizational growth through acquisition involves absorption, and the political model when organizational growth calls for diversification. A contingency historical study of ITT demonstrates two important periods in ITT’s organizational life cycles ‐ one of growth (1920‐early 1970s) and one of consolidation/stability (from mid‐1970 to the present time). Contingency models indicate that differences in organizational growth strategies arise due to differences in environmental factors characterizing each period as organizations pass through several stages of growth in their life cycles.

The purpose of the authors’ research study is to identify the impact of life cycle stage on firm acquisitions.

The authors use a series of empirical databases to identify characteristics of acquirers and their targets. The authors then use logistic regressions and joint tests to identify significant differences between declining and non-declining acquirers.

The authors find that declining acquirers are more likely to pursue diversifying acquisitions and to pay for the acquisition with stock considerations. Acquisitions by declining acquirers result in positive abnormal returns initially, but post-acquisition returns are negative.

The authors’ primary limitation is their data, which only includes public acquirers and targets, and runs from January 1, 1988 to December 31, 2010.

The authors’ research suggests that regulators, stakeholders and prospective stakeholders should consider the life cycle stage of an acquiring firm in setting expectations about motivations for and likely performance subsequent to the acquisition.

The authors’ paper is the first to consider the effect of firm life cycle stage on the motivation and subsequent success of an acquisition. Given the tremendous impact to shareholders of such significant transactions, understanding the acquisition process more completely is important to capital markets participants.

This study aims to investigate how new CEOs’ previous experiences in other organizations and other industries create value in acquisitions. Drawing on the upper echelon perspective, this study theorizes that the multiorganizational experience of new CEOs is positively associated with acquisition performance and, in particular, that the multi-industry experience of new CEOs leads to better performance in diversifying acquisitions than in related acquisitions. While new CEOs without multiorganizational experience undergo a cognitive entrenchment in firm-specific experience, new CEOs with multiorganizational experience can lead acquisitions with more flexibility and agility.

Acquisition and organizational data were drawn from the US manufacturing industries (SIC 20-39) between 2008 and 2010. The event study method was used to test hypotheses. In 346 acquisitions made by 139 firms, acquisition performance was measured according to cumulative abnormal returns.

Consistent with the hypotheses, the multiorganizational experience of new CEOs was positively associated with acquisition performance and, in particular, the multi-industry experience of new CEOs led to better performance in diversifying acquisitions than in related acquisitions.

This paper contributes to the CEO literature and acquisition literature by suggesting that the multiorganizational experience of new CEOs can be a valuable source of competitive advantages, particularly when implementing corporate strategies involving interorganizational integration processes.

This study aims to build on the organizational learning theory and propose a complex strategy by combining strategic alliance with subsequent acquisitions to penetrate new product markets. The authors empirically examined whether and to what extent preacquisition alliance experience affects the short- and long-term stock performance of acquiring firms.

Data on acquisitions, in which the acquirers have experience from preacquisition alliance activities in their targets’ respective industry, were collected. Diversifying acquisitions were focused upon to ensure that preacquisition alliance experience is the major source of organizational learning. A standard event study to examine acquirers’ abnormal returns was used and a Fama-French calendar-time portfolio approach to gauge long-run abnormal stock performance was adopted. In addition, regression analysis was conducted to investigate the alliance–acquisition relationship, controlling a set of variables capturing firm and acquisition characteristics.

It has been documented that in the short run, alliance experience may not always benefit acquirers’ stock performance surrounding the acquisition announcements. In particular, for acquiring firms experiencing negative cumulative abnormal returns, investors value alliance experience negatively. However, for up to 36 months after acquisitions, acquirers with alliance experience outperform their counterparts in almost every acquisition category regardless of the short-term announcement returns.

The current study has used a large-scale representative sample to investigate the dynamic interaction between alliances and acquisitions as two organizational forms for firms to grow. Findings indicate that firms can deliberately learn from their alliance activities and, later on, enter new markets through acquisitions. More importantly, it was found that, at least for some acquirers, preacquisition alliance activities are associated with worse short-term stock price performance because of possible information spillover and lifted entry barriers. It was confirmed that short-term pain nets long-term gains for acquirers heading into new markets.

Building on behavioral agency theory, the authors explore the role played by corporate governance characteristics as drivers of the diversification strategies of family firms. Specifically, this study aims to investigate the effects of board size and board gender diversity on the likelihood that family firms will execute a diversifying acquisition vis-à-vis a related acquisition. Furthermore, the authors investigate the contingency effects played by foreign directorship and the firm’s listing status.

The hypotheses are tested on an original sample of 213 cross-border acquisitions executed by Italian family firms between 2008 and 2021.

The findings suggest that both large board sizes and greater gender diversity positively affect the diversification of family firms. While the presence of foreign directors magnifies the positive effect of board size, gender diversity discourages diversification in the case of listed firms.

The originality of this study is twofold. First, while prior literature has mostly focused on the family vs nonfamily dichotomy, this paper contributes to an emergent line of research investigating the heterogeneity among family firms’ corporate strategy decisions. Second, by exploring the corporate governance-diversification link in the context of family business, the authors answer to recent calls that diversification by family firms deserves further investigation in light of its highly controversial nature in terms of socioemotional wealth implications and potential mismatch among multiple objectives.

This article aims to take a fresh look at diversification – a growth strategy often disparaged by managers and commentators alike, yet one that is followed successfully by some major organizations.

Data were gathered from a number of successful diversifiers, such as GE, to determine the practices they follow and how these might be applied by other organizations.

Successful diversifiers have seven features, which all CEOs, boards and executive teams can learn from. They select capable division managers; secure competitive advantage at division and business‐unit levels; establish a supportive corporate center for their divisions; install appropriate performance measures; set effective incentives for managers; align the corporate culture to strategic direction; pay the right price in acquisitions; spend time and resources integrating acquisitions with the existing organization.

The value of these findings is that organizations in all sectors – business, government and not‐for‐profit – can benefit greatly by emulating the practices of successful diversifiers and thus boost their own performance.