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Acquisition is one of key corporate strategic decisions for firms’ growth and competitive advantage. Firms: (1) diversify through acquisition to balance cash flows and…
Acquisition is one of key corporate strategic decisions for firms’ growth and competitive advantage. Firms: (1) diversify through acquisition to balance cash flows and spread the business risks; and (2) eliminate their competitors through acquisition by acquiring new technology, new operating capabilities, process innovations, specialized managerial expertise, and market position. Thus, firms acquire either unrelated or related business based on their strategic motivations, such as diversifying their business lines or improving market power in the same business line. These different motivations may be related to their assessment of market growth, firms’ competitive position, and top management’s compensation. Thus, it is hypothesized that firms’ acquisition decisions may be related to their industry growth potential, post-acquisition firm growth, market share change, and CEO’s compensation composition between cash and equity. In addition, for the two alternative acquisition accounting methods allowed until recently, a test is made if the type of acquisition is related to the choice of accounting methods. This study classifies firms’ acquisitions as related or unrelated, based on the standard industrial classification (SIC) codes for both acquiring and target firms. The empirical tests are, first, based on all the acquisition cases regardless of the firm membership, and then, deal with the firms acquiring only related businesses or unrelated businesses exclusively.
The type of acquisitions was more likely related to industry growth opportunities, indicating that the unrelated acquisition cases are more likely to be followed by higher industry growth rate than the related acquisition cases. While there were a substantially larger number of acquisition cases using the purchase method, the related acquisition cases used the pooling-of-interest method more frequently than in the unrelated acquisition cases. The firm-level analysis shows that the type of acquisition decisions was still related to acquiring firms’ industry growth rate. However, the post-acquisition performance measures, using firm’s growth and change in market share, could support prior studies in that the exclusive-related acquisitions helped firms grow more and get more market share than the exclusive-unrelated acquisitions. CEO’s compensation composition ratio was not related to the types of acquisition.
The purpose of this paper is to examine the effect of financial constraints on firm growth considering six types of ownership structure. According to the theory of…
The purpose of this paper is to examine the effect of financial constraints on firm growth considering six types of ownership structure. According to the theory of financial management and asymmetric information theory, external funds are costly for small firms. However, some ownership structures may alleviate cash flow-growth sensitivity. The paper considers different types of ownership structure to study cash flow-growth relation and its sensitivity.
Results are drawn from a dynamic panel data model under the two specific empirical models. Those designs can capture important empirical meanings.
The sensitivity of growth to cash flow decreases significantly when managers control larger proportions of a firm's stock and when a firm belongs to a conglomerate. The findings also show that small and young firms grow faster. R&D and advertising expenditures also motivate a firm's growth, as do profitability and abundant cash flow.
This paper uses a dynamic panel data model to investigate the effect of cash flow on firms' growth under six types of ownership structure. The sensitivity analysis of growth to cash flow provides new results for traditional literature. In fact, different ownership structures lead to distinct cash flow-growth sensitivity.
Using accounts data for a sample of 38 small manufacturing firms located in Tayside Region, this paper investigates the relationship between company characteristics…
Using accounts data for a sample of 38 small manufacturing firms located in Tayside Region, this paper investigates the relationship between company characteristics including size, age, location and industry group, and profitability and growth. The trade‐off between the possibly conflicting objectives of profit and growth is considered primarily from the entrepreneurial rather than the managerial standpoint which previous econometric studies of small firm performance have concentrated on. Motivations for undertaking entrepreneurial activity and their possible relationships with profitability and growth are discussed and a number of hypotheses developed. From this perspective it is argued that a firm size measure based on employment is more appropriate than one based on sales or assets which previous studies have used. Firm characteristics are found to be of limited value in explaining profitability. However, larger firms are found to grow faster than smaller, and younger firms are found to grow faster than older. This is also some evidence that growth is stronger in urban than in suburban or rural locations. It is possible that entrepreneurial motivations are an important factor in this regard and it is suggested that future econometric studies of small firm performance take these into account.
This article reports the findings of a survey of export attitudes and behavior of small‐ and medium‐sized U.S. manufacturing firms. Companies are differentiated according…
This article reports the findings of a survey of export attitudes and behavior of small‐ and medium‐sized U.S. manufacturing firms. Companies are differentiated according to their growth expectations and the behaviors of firms that have export growth expectations are compared to the behavior of firms that do not anticipate export growth. The authors suggest that the export growth expectations of a firm shape its behavior in terms of contact activities and its perceptions of export problems. Recommendations are made regarding the use and helpfulness of outside information sources.
Building upon the framework of the tradeoff model of capital structure and motivated by the equity market timing theory, we examine whether equity misvaluation is a source…
Building upon the framework of the tradeoff model of capital structure and motivated by the equity market timing theory, we examine whether equity misvaluation is a source of adjustment “costs” that will affect a firm’s leverage adjustment speed toward target. We also investigate whether the quality of a firm’s long-term growth options will influence the decisions of managers to exploit the mispriced equity to converge to the optimum. Using a sample of listed Taiwanese firms during 1992–2014 and employing the market-to-book decomposition as developed by Rhodes-Kropf, Robinson, and Viswanathan (2005), we find that overleveraged and overvalued firms demonstrate faster adjustment speed than overleveraged but undervalued firms. Furthermore, controlling for the misvaluation status, high-growth firms converge to target faster than their low-growth counterparts. The effect of growth options on the relation between equity mispricing and adjustment speed does not mirror the effect of financing deficits. With the detailed financial information of the local companies across a rather long time series, this study provides incremental inputs to the literature of capital structure from the determinants of target leverage, the estimation of leverage adjustment speeds, to the identification of the sources of adjustment costs in an emerging market where institutional environment is strikingly different from the US.
Current gazelle and high growth firm (HGF) research provides relatively little systematic knowledge if, how, why firm internationalization facilitates accelerated growth…
Current gazelle and high growth firm (HGF) research provides relatively little systematic knowledge if, how, why firm internationalization facilitates accelerated growth. This chapter aims at providing such an insight by addressing the following three questions: (1) What is the evidence of internationalization as an determinant of HGF; (2) How does internationalization facilitates fast growth?; (3) What do we know about the circumstance under which internationalization contributes to HGF? The chapter concludes that while there is clear evidence that internationalization and its different modes can be important determinants of accelerated firm growth, our knowledge remains limited on how different circumstances of the firm at the micro-, meso- and macro-level interact to condition growth opportunities through internationalization.
This study tests the “Resource Balance Proposition” that is developed from the Resource-Based View (RBV) of strategy. While recent research using RBV to study new ventures…
This study tests the “Resource Balance Proposition” that is developed from the Resource-Based View (RBV) of strategy. While recent research using RBV to study new ventures has focused primarily on the identification and acquisition of resources (Alvarez & Busenitz, 2001; Lichtenstein & Brush, 2001), this investigation examines the deployment of given resources in the pursuit of growth. It argues that the effective management of the resource base is at least as important to long-term survival as securing that base in the first place. Further, it assumes that firm growth is a desirable goal (especially for young firms) but posits that growth is not without cost and highly accelerated growth is particularly costly. Therefore, the hypotheses presented in this paper propose that there is a growth trajectory that optimizes profits and net worth by striking a balance between the resource deployments necessary to fuel growth and those needed to meet current obligations. The findings from this study confirm that both too little and too much growth have detrimental effects on firm vitality. More specifically, the data show a curvilinear relationship between the absolute rate of firm growth and the levels of both profits and net worth. This finding provides significant support for the Resource Balance Proposition, which states that the allocation of firm resources must be properly balanced between current resource positions and future resource positions to maximize wealth creation.
Why do some ventures grow to become dominant market players while most new ventures that do not fail limp along more modest trajectories? In comparison with our knowledge…
Why do some ventures grow to become dominant market players while most new ventures that do not fail limp along more modest trajectories? In comparison with our knowledge regarding determinants of venture creation or survival, the phenomenon of venture growth has been relatively neglected, both theoretically and empirically. Venture growth is a multi-level phenomenon co-occurring at different analytical and temporal levels. In this chapter we develop a theoretical model that accounts for venture growth as a process, drawing upon the mechanism-based theorizing approach. We offer nine social mechanisms that lead to venture growth, providing a foundation for empirical exploration and further theory building.
The aim of the study is to examine the effects of opportunity creation and discovery on the performance of family firms. Specifically, from the tenets of dynamic…
The aim of the study is to examine the effects of opportunity creation and discovery on the performance of family firms. Specifically, from the tenets of dynamic capabilities and organizational contingency perspectives, this study proposes and tests a framework of how family firms' creation and discovery behavior impact venture growth and the conditions under which such impact can vary.
The study uses moderated-hierarchical regression to analyze survey data from 156 family-owned small and medium-sized enterprises (SMEs) operating within a sub-Saharan African economy.
The findings indicate that creation behavior has a curvilinear U-shaped relationship with venture growth, while discovery behavior has a direct positive relationship with venture growth. Further analysis reveals that the curvilinearity of the U-shaped relationship between creation and venture growth will be stronger for older family firms than for younger ones.
The study findings may be limited by the cross-sectional nature of the data and the specific focus on family firms only.
The results highlight the significance of pursuing both opportunities among family firms. In fact, both creation and discovery opportunities are significant drivers of family firm growth, albeit in different capacities. Relatedly, managers of older family firms (compared to younger firms) can invest more in exploiting creative opportunities.
From these findings, governments and other stakeholders should create enabling environment and institutional frameworks conducive to exploiting opportunities by entrepreneurial firms.
The study is novel – as it provides unique findings on the performance implications of creation and discovery behavior of entrepreneurial family firms within developing economies.
This chapter employs institutional theory and the demand-side approach to discuss the entry of new companies into industries. Theory and empirical evidence provides…
This chapter employs institutional theory and the demand-side approach to discuss the entry of new companies into industries. Theory and empirical evidence provides support for the hypothesis that the industry stage of development is the primary factor that determines whether a company should use innovation or imitation as an entry wedge. The evidence suggests that innovation is most often used successfully during the introduction and decline stages of industry development. Imitation is most often used successfully during the growth stage of industry development. During the mature phase both innovation and imitation are used, but usually with limited success.