The Roles of Signals and Acquirer Experience in Selecting Targets in High-Tech Industries

Abstract

This study examines how firms can overcome obstacles to identifying and selecting high-tech ventures for acquisitions given the uncertainty and risks surrounding such deals. Specifically, we build on signaling theory and develop the argument that firms with extensive acquisition experience have more abilities to attend to and act on the signals conveyed from high-tech ventures’ interorganizational relationships, which can manifest the value of ventures’ resources and prospects. The empirical evidence shows that acquisitions involving high-tech ventures are facilitated by their association with alliance partners and venture capitalists, and the signaling benefits of affiliations are strengthened along with the acquirer’s M&A activities. We therefore suggest that whereas signaling theory has effectively highlighted the importance of signals in mitigating the frictions in M&A markets, looking into the heterogeneity of acquisition experience among firms helps explain which buyers are more likely to acquire attractive targets with signals.