Acquisition Experience and Performance Implications

Abstract

Firms often experience successes and failures in their acquisition activities. How do these acquisition experiences affect their subsequent acquisition performance? This study integrates insights from both attribution theory and organizational learning theory to investigate how prior successes and failures in acquisition activities affect subsequent acquisition performance. Specifically, we differentiate four different experiences of successes and failures, namely acquisition success/failure experience at both firm and industry levels. We argue that managers may develop different causal attributions for their acquisition successes/failures in the context of industry success/failure experience, the joint effect of which influences the performance of their following acquisitions. Analyses of U.S.-based firms in both biotech and computer industries during the period of 1980-2010 suggest that industry-wide acquisition success experience helps alleviate managers' attribution bias, increasing their success rate in following acquisitions. However, industry-wide acquisition failure experience amplifies managers' attribution bias in their prior acquisition success experience, increasing their failure rate in following acquisitions.