The effects of acquisition on the growth of new technology-based firms: Do different types of acquirers matter?

Jing Xiao

doi:10.1007/s11187-015-9656-y

Abstract

The growth of new technology-based firms (NTBFs) is usually restricted by their limited ownership and management structures. This paper explores whether acquisition, particularly that by multinational enterprises (MNEs), promotes the growth of NTBFs. Based on Swedish micro-level longitudinal data, this study further distinguishes between Swedish MNEs and foreign MNEs as acquirers and disentangles their different acquisition effects on the growth of NTBFs. Based on a large sample of Swedish NTBFs entering from 1997 to 2002 and being followed until 2009, this paper uses fixed-effects model combined with inverse-probability-of-treatment weights to account for endogeneity of acquisition arising from both time-invariant and time-varying heterogeneity across firms. The findings show that acquisition by Swedish MNEs significantly improves the growth of NTBFs, but only when it comes to the growth in employees. In contrast, acquisition by both foreign MNEs and Swedish domestic enterprises is not found to have any significant effects on the growth in either employees or sales of NTBFs.

Highlights

Over the recent decades, the economic slowdown of the main developed economies in Europe has directed both academic and political concerns toward entrepreneurship in general and new technology-based firms (NTBFs) in particular, with respect to their potential impact on employment growth, technology transfer, and industry renewal (Licht and Nerlinger 1998; Almus and Nerlinger 1999; Rickne and Jacobsson 1999)
This paper explores whether acquisition by multinational enterprises (MNEs) is more likely than that by domestic enterprises to promote the growth of NTBFs, given that MNEs are widely recognized as having high levels of ownership advantages and management skills and international networks and linkages of knowledge, so their resources may better complement those of local NTBFs
In terms of the treatment effect of acquisition, we find that only acquisition by Swedish MNEs significantly improves the growth in employees for NTBFs

Summary

Introduction

The economic slowdown of the main developed economies in Europe has directed both academic and political concerns toward entrepreneurship in general and new technology-based firms (NTBFs) in particular, with respect to their potential impact on employment growth, technology transfer, and industry renewal (Licht and Nerlinger 1998; Almus and Nerlinger 1999; Rickne and Jacobsson 1999). One explanation is that the growth of NTBFs may be restricted by their ownership and management structures (Bonardo et al 2010) If this argument holds, ownership changes, such as mergers and acquisitions (M&As), may be a solution to release the growth constraint faced by NTBFs. The main purpose of this paper is to examine whether acquisition promotes growth of NTBFs. this paper explores whether acquisition by multinational enterprises (MNEs) is more likely than that by domestic enterprises to promote the growth of NTBFs, given that MNEs are widely recognized as having high levels of ownership advantages and management skills and international networks and linkages of knowledge, so their resources may better complement those of local NTBFs. compared to domestic acquirers, foreign MNEs may suffer from ‘‘liability of foreignness’’ (Zaheer 1995), which is likely to negatively influence the growth of NTBFs acquired by foreign MNEs. compared to domestic acquirers, foreign MNEs may suffer from ‘‘liability of foreignness’’ (Zaheer 1995), which is likely to negatively influence the growth of NTBFs acquired by foreign MNEs In this context, this study further distinguishes between domestic MNEs and foreign MNEs as acquirers and disentangles their different acquisition effects on the growth of NTBFs. In addition, when studying the effect of acquisition on the growth of firms, a methodological challenge is to account for the possible endogeneity of acquisition. If we observe that acquired firms have higher growth than their non-acquired counterparts, is the higher growth due to acquisition per se—acquired firms benefit from resources and capabilities transferred from acquiring firms—or to a selection effect—firms with higher growth performance or prospects are more likely to be acquired? In other words, is the higher growth of acquired firms due to the treatment effect of acquisition or a selection effect? This paper addresses this issue as well by distinguishing the selection effect from the treatment effect

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