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1 – 10 of over 4000Sangho Chae, Byung-Gak Son, Tingting Yan and Yang S. Yang
This study investigates the extent to which structural equivalence between acquiring and target firms is associated with post-merger and acquisition (M&A) performance—a…
Abstract
Purpose
This study investigates the extent to which structural equivalence between acquiring and target firms is associated with post-merger and acquisition (M&A) performance—a relationship that is proposed to be moderated by industry-level vertical relatedness between acquiring and target firms.
Design/methodology/approach
Applying social network analysis and regression, this study analyzes a buyer–supplier relationship network dataset of 279 M&A deals completed between 2010 and 2017 to test the hypotheses. Structural equivalence is measured as the proportion of common customers and suppliers between an acquiring firm and a target firm.
Findings
Supporting a view about the importance of supply chains in explaining M&As outcomes, the results suggest that the structural equivalence in the supplier network is positively associated with post-M&A firm performance. The results also show that the effect of the structural equivalence in the customer network is moderated by vertical relatedness between two merging firms (i.e. structural equivalence contributes to post-M&A performance when vertical industry relatedness is high).
Originality/value
This study contributes to the M&A and supply network literature by investigating the performance implications of structural equivalence in supplier and customer networks, demonstrating the importance of taking a supply chain view when explaining M&As outcomes. Specifically, the authors suggest considering structural equivalence as a new type of relatedness between merging firms (i.e. relatedness in network resources in explaining post-M&A performance). It also indicates how industry-level vertical resource relatedness, which is about relatedness in internal resources between the two firms, could interact with firm-level network resource relatedness, which is about relatedness in external supply chain resources between the two firms, in affecting post-M&A performance.
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This study analyzes whether industry relatedness between a corporate borrower and its group peers significantly affects that firm's borrowing cost.
Abstract
Purpose
This study analyzes whether industry relatedness between a corporate borrower and its group peers significantly affects that firm's borrowing cost.
Design/methodology/approach
A regression analysis is run on bank-loan data of a sample of Indonesian companies for 2010–2020. The main variables of interest are the natural logarithms of the borrowing firm's number of affiliates classified within either similar 2- or 4-digit GICS industries, and the Caves weighted index of these firms' related diversification. This index measures how firms in a group are diversified in relation to the borrower. The dependent variable is the all-in credit spread, stated in basis points, over the LIBOR or similar benchmark, as of the loan issuance date.
Findings
Findings support the industry-relatedness hypothesis and contradict the risk-reduction hypothesis and show that banks charge lower loan spreads on a borrowing firm that either operates within a similar industry as its affiliate or diversifies into related sectors or industries. Consistent with the co-insurance-effect hypothesis, the results also underline the importance of the parent and first-layer firms as supporting instead of the tunneling vehicles within business groups. These conclusions hold even after segregating the sample and using the loan maturity as the dependent variable.
Originality/value
This study uses a unique diversification measurement based on the borrowing firm's sector or industry, relative to other group members, and offers new insights on business group diversification and bank loan costs.
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Lasse B. Lien and Peter G. Klein
While the strategic management literature suggests that related diversification is superior to unrelated diversification, there is little evidence that acquirers benefit from…
Abstract
While the strategic management literature suggests that related diversification is superior to unrelated diversification, there is little evidence that acquirers benefit from pursuing related targets. We argue that the empirical literature is plagued by poor measures of relatedness. Moreover, many empirical studies do not control adequately for the characteristics of the market for corporate control. We argue that not only value creation, but also value appropriation, depend on the relatedness of acquirer and target. Using an improved measure of relatedness, we provide empirical evidence that acquirer returns are positively and significantly correlated with relatedness.
Karthik Dhandapani and Rajesh S. Upadhyayula
The purpose of this paper is to examine the impact of related diversification across service offerings and industry domains for professional service firms (PSFs) in emerging…
Abstract
Purpose
The purpose of this paper is to examine the impact of related diversification across service offerings and industry domains for professional service firms (PSFs) in emerging economies by integrating the reputational and economies of scope perspectives of diversification. The paper also provides insights into how related diversification impacts small and medium sized firms differently.
Design/methodology/approach
Using unique data from the Indian Information Technology industry, the authors examine the impact of related diversification along service offerings and industry domains on export performance of firms.
Findings
The results show that related diversification across specializations and industry domains impact performance differently across different firm sizes. While the authors find that related diversification across service offerings has an inverted U shape with performance for the medium sized firms, they do not impact performance for small sized firms. Performance of small firms has a U shaped relationship with relatedness in industry domains. The study shows that reputation transfer across industry domains play a significant role in the performance of small size firms whereas the ability to realize economies of scope by cross selling multiple services across clients do matter for performance of medium sized firms.
Practical implications
Managers of small PSFs need to expand along related industry domains whereas managers from medium sized firms can experiment across service offerings to exploit economies of scope.
Originality/value
The study contributes to hitherto unexamined research on related diversification in PSFs. The study is one of the few studies to examine relatedness along more than one dimension in an intra-industry context.
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Wei Shi and Matthew Weber
Entrepreneurs approach the startup process with a stock of experience and a unique range of accumulated skills and abilities. Their prior experience shapes an “information funnel”…
Abstract
Purpose
Entrepreneurs approach the startup process with a stock of experience and a unique range of accumulated skills and abilities. Their prior experience shapes an “information funnel” through which the entrepreneurs’ attention is filtered. This study aims to investigate the impact of the relatedness of prior knowledge and knowledge acquisition activities on entrepreneurs’ perceived knowledge access.
Design/methodology/approach
Survey data were collected from 100 early-stage entrepreneurs in the New York City metropolitan area to empirically test the proposed relationships with the method of conditional process modeling.
Findings
Findings from this study demonstrate a negative relationship between entrepreneurs’ prior experience and their perceived ability to access knowledge. However, this negative relationship can be mitigated by seeking tacit knowledge through informal channels. In addition, the relatedness of prior experience plays a positive role in influencing media use and knowledge network engagement. While media use is a positive predictor of perceived knowledge access, engagement within knowledge networks shows no direct influence on perceived knowledge access.
Originality/value
This study sheds light on the dimensions of entrepreneurial knowledge and recognizes perceived knowledge access as an important concept in forming an entrepreneurial intention and adds to the current dialogue on the interpretation of entrepreneurs’ prior experience. For practitioners, this study offers insights into the formation of founding teams and the approaches to obtaining valuable information.
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Peter G. Klein and Lasse B. Lien
Ronald Coase's landmark 1937 article, “The Nature of the Firm,” framed the study of organizational economics for decades. Coase asked three fundamental questions: Why do firms…
Abstract
Ronald Coase's landmark 1937 article, “The Nature of the Firm,” framed the study of organizational economics for decades. Coase asked three fundamental questions: Why do firms exist? What determines their boundaries? How should firms be organized internally? To answer the first question, Coase famously appealed to “the costs of using the price mechanism,” what we now call transaction costs or contracting costs, a concept that blossomed in the 1970s and 1980s into an elaborate theory of why firms exist (Alchian & Demsetz, 1972; Williamson, 1975, 1979, 1985; Klein, Crawford, & Alchian, 1978; Grossman & Hart, 1986). The second question has generated a huge literature in industrial economics, strategy, corporate finance, and organization theory. “Why,” as Coase (1937, pp. 393–394) put it, “does the entrepreneur not organize one less transaction or one more?” In Williamson's (1996, p. 150) words, “Why can't a large firm do everything that a collection of small firms can do and more?” As Coase recognized in 1937, the transaction-cost advantages of internal organization are not unlimited, and firms have a finite “optimum” size and shape. Describing these limits in detail has proved challenging, however.1
Elisa Labbas, Padma Rao Sahib and Trang Thu Doan
Many announced cross-border mergers and acquisitions (M&As) are never brought to completion despite potential negative consequences to acquirers and targets. This paper presented…
Abstract
Many announced cross-border mergers and acquisitions (M&As) are never brought to completion despite potential negative consequences to acquirers and targets. This paper presented evidence on the dynamic effects of spatial distance and two industry-level characteristics, namely industry relatedness between the two firms and technological intensity, on the completion likelihood of cross-border M&A deals. Based on a sample of 8,489 M&A transactions we found that the completion likelihood of cross-border M&As increases with spatial distance. The effect is more pronounced for deals across technology-based industries, evidence for related deals is inconclusive.
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Mohammad Fuad, Vinod Thakur and Ashutosh Kumar Sinha
From the socioemotional wealth (SEW) perspective, family firms prioritize non-financial goals and show risk averse behaviour towards conducting acquisitions. In this paper, we…
Abstract
Purpose
From the socioemotional wealth (SEW) perspective, family firms prioritize non-financial goals and show risk averse behaviour towards conducting acquisitions. In this paper, we study family firms' acquisitive behaviour while participating in CBA waves. Scholars have largely treated the cross border acquisition (CBA) wave and non-wave environments as homogeneous. We theorize that these two environments differ in their uncertainty and risk profiles on account of temporal clustering of acquisition deals. Accordingly, based on the SEW perspective, we examine the preference of family firms to participate in CBA waves.
Design/methodology/approach
The paper is based on CBAs conducted by Indian family firms between 2000 and 2018. These waves are identified by conducting a simulation based methodology.
Findings
Our findings suggest that foreign institutional ownership, firm age and acquisition relatedness moderate the relationship between family control and participation in CBA waves.
Originality/value
Our paper contributes towards the acquisitive behavior of family firms and their participation in CBA waves.
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The purpose of this paper is to examine the role of diversity management on postmergers and acquisitions (M&A) performance. Building on prior literature, it investigates whether a…
Abstract
Purpose
The purpose of this paper is to examine the role of diversity management on postmergers and acquisitions (M&A) performance. Building on prior literature, it investigates whether a firm ability to harmonize people with different backgrounds and to deal with uncertainty and dynamics in the diverse work environment will affect post-M&A performance either directly or through its interactions with acquirer-target characteristics.
Design/methodology/approach
This paper used panel regression analysis on a sample of 218 M&As conducted by listed large US firms across industries.
Findings
Results show that the diversity management of an acquiring firm positively influences post-M&A performance. This paper also finds support for diversity management having a more significant moderating role where merged firms have a bigger size difference and higher industry relatedness.
Originality/value
The primary contribution of this study is in testing and finding evidence to support the claim that diversity management is a useful factor in predicting post-M&A performance. The success of post-M&A integration should be considered alongside the extent of firm capabilities to manage internal diversity.
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Hyun Gon Kim, Ajai S. Gaur and Debmalya Mukherjee
As multinational companies enter different countries, the extent of cultural unfamiliarity they face depends on their most recent entry. We examine this pattern of added cultural…
Abstract
Purpose
As multinational companies enter different countries, the extent of cultural unfamiliarity they face depends on their most recent entry. We examine this pattern of added cultural distance between a newly entered target country and the closest previous one and its effect on ownership decisions in each cross-border acquisition (CBA). We also examine the combined effect of added cultural distance and time between successive acquisitions on such decisions.
Design/methodology/approach
The sample came from the Thomson Financial Securities Data Corporation (SDC) Platinum database, which spans different source and target countries for a 25-year period (1980–2014). We collected firm- (acquirer and target), industry-, country-, and transaction-level variables from SDC. After merging information from the different sources, the final sample comprised 10,423 CBA observations from 138 target countries.
Findings
Our findings reveal that the ownership share decision is affected negatively by added cultural distance but positively by the time between two successive acquisitions. In addition, prior ownership and geographic distance moderate the relationship between added cultural distance and ownership in CBAs.
Practical implications
Our findings suggest that MNCs' managers who consider CBAs need to carefully examine closest previous target information and CBA experience, rather than focusing on direct cultural distance between the focal firm and target firm. Additionally, they should also consider the relevance of key contingency factors.
Originality/value
We disentangle the effects of added cultural distance on CBA ownership decisions and explore the boundary conditions of this relationship.
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