Prior Acquisition Experience Research Articles

The dark side of well-connected directors: Evidence from private firm acquisitions

We adopt a difference-in-difference approach to investigate the relationship between the board network and the acquirer's cumulative abnormal returns (CAR) by examining the influence of the directors' sudden death or retirement. We find that firms experiencing the departure of well-connected directors tend to obtain higher CAR when acquiring private targets. This suggests that well-connected directors may reduce the values of mergers and acquisitions (M&A). However, acquirers with greater external monitoring can reduce this negative effect. We also find that these directors with prior acquisition experience are more likely to secure board positions. In summary, these results support the agency problem that well-connected directors tend to make more M&A deals for their private benefits.

Does employee mobility network influence acquisition behavior? Evidence from the semiconductor industry

This article examines the role of employee mobility network in influencing a firm’s merger and acquisition behavior. Specifically, we draw upon the social network perspective and theorize that a firm’s employee mobility network centrality positively influences the number of announced merger and acquisition deals in a hi-tech industry. However, the firm’s prior acquisition experience and absorptive capacity negatively moderate the relationship between the employee mobility network centrality and the number of announced merger and acquisition deals. Our findings based on a sample of US semiconductor firms in the period 1992–2010 provide robust support to our theorization.

The establishment mode of Chinese MNEs abroad and the Belt and Road Initiative: insights from a strategy tripod perspective

PurposeEmerging-market multinational enterprises (MNEs) have pushed institutional factors to the cutting-edge of international business research. As for Chinese MNEs, the importance of institutions has been strengthened since the Chinese government launched the Belt and Road Initiative (BRI), which seeks to promote a comprehensive platform for cooperation among countries. This study aims to investigate the role played by the BRI as an institutional factor moderating the influence of other institution-, industry- and firm-specific factors on establishment mode choice by Chinese MNEs.Design/methodology/approachDrawing on the strategy tripod, a perspective claiming that a firm's strategies are the result of internal, industrial and institutional conditions, this study develops a number of hypotheses that are tested with data on 1,076 outward foreign direct investments (OFDIs) of Chinese MNEs between 2013 and 2021.FindingsThe results show that the BRI moderates the influence of both the firm's prior international acquisition experience and Chinese government's OFDI restrictions on the establishment by means of an acquisition. They also report that this moderating effect does not apply for acquisition experience in the host country nor institutional distance.Originality/valueThis study contributes to reinforce the importance of institutions as the third leg of a strategy tripod when explaining international behavior of Chinese MNEs. It also suggests that the BRI is a diplomatic tool that may act as a substitute for the firm's resources and may mitigate the negative influence of other external factors.

Overcoming institutional challenges in cross-border acquisitions: how home- and host-country acquisition experiences shorten the deal completion phase

PurposeDrawing on the institutional theory and organizational learning literature, the purpose of this study is to investigate the relationship between prior acquisition experience and the duration of the deal completion stage in cross-border acquisitions and the impacts of the quality of business institutions in the host country and the institutional distance between home and host countries on this relationship.Design/methodology/approachThis study uses the sixth wave of mergers and acquisitions, the first truly global wave that covered a wide range of institutional settings, to test the hypotheses. Using a panel data regression method, it analyzes 8,175 cross-border acquisitions from 2003 to 2009, conducted by acquirers from 47 advanced and emerging economies in 56 advanced and emerging economies.FindingsThis study finds that host-country acquisition experience has more impact on shortening deal completion duration. Home-country acquisition experience is more effective in host countries with less developed business institutions than in those with more developed ones. The results of this study show that the quality of business institutions in the host country and the institutional distance between the home and host countries amplify or attenuate the effect of past acquisition experiences, depending on their origin and the quality of business institutions and institutional distance of where they are used.Originality/valueThe growing popularity of cross-border acquisitions among emerging country acquirers calls for a systemic study of the cross-border acquisition process. One of the critical and less understood stages in this process is the deal completion stage. This study examines how the institutional environments in the home and host countries impact the effectiveness of past acquisition experiences on shortening this stage.

Shareholders’ indifference… short-term market reaction to firms’ first and subsequent acquisitions: evidence from China

Having analysed the history of acquisitions by public Chinese companies over the period of 1996–2020, we document no persistent statistically significant short-term market reaction upon deal completion. Short-term cumulative abnormal returns are non-different from zero regardless of whether the acquisition is the first or one of many on acquirers’ record, whether it is domestic or cross-border or whether it is vertical or horizontal as well as regardless of industry and declared purpose of acquisition. In the overwhelming majority of cases, acquirers’ prior acquisition experience plays no role in shaping short-term post-acquisition returns. Lower returns are associated with serial acquirers especially if the series of acquisitions occurs within the same industry. Likewise, significantly lower cumulative returns are observed if the acquiree is a state-owned entity. Overall, the markets appear to attach no abnormal returns to firms’ inorganic growth regardless of its span across geographies, industries and time.

Cultural heterogeneity, acquisition experience and the performance of Chinese cross-border acquisitions

Using data over the 2010-2015 period, we investigate the effect of cultural heterogeneity and cross-border acquisition experience on post-acquisition performance of Chinese publicly listed companies (PLCs). We find that between and within cultural heterogeneity has a negative and statistically significant effect on post-acquisition performance, but the effect of acquisition experience on post-acquisition performance is positive. We find that the dynamic marginal effects of cultural heterogeneity and acquisition experience on post-acquisition performance of Chinese PLCs are contingent on the scale of acquisition. Chinese PLCs can improve their post-acquisition performance by overcoming the issues arising from cultural heterogeneity, accumulating acquisition experience, and exploiting economies of scale. However, in the case of state-owned PLCs, prior cross-border acquisition experience can adversely affect the performance of new cross-border acquisitions.

State ownership, prior experience and performance: a comparative analysis of Chinese domestic and cross-border acquisitions

PurposeDrawing on three theoretical frameworks, this paper aims to examine the effects of state-owned enterprises (SOEs) and the interaction between SOEs and prior acquisition experience of Chinese domestic and cross-border acquirers.Design/methodology/approachUsing a sample of 4,116 firms consisting of 3,939 domestic mergers and acquisitions (M&As) and 177 cross-border M&As over the period 2004–2017, this study adopts both accounting- and market-based performance measures, namely, return on assets, return on equity and buy-and-hold abnormal return to analyse the effects of SOEs and the interaction between SOEs and prior acquisition experience on acquirers’ performance.FindingsFirst, this paper finds SOEs to exert a positive influence on acquirer performance, contrary to agency theory but in line with the resource-based view. However, the positive relationship between SOEs and performance appears more pronounced for domestic M&A compared to cross-border M&As. Second, this study also finds prior acquisition experience and the combined effect of SOE and prior acquisition experience to have a positive and significant bearing on performance.Research limitations/implicationsThe limitation of this study is the lack of cross-border M&A data with all the relevant information compared to domestic M&A. Thus, the cross-border M&A sample appears lower compared to the domestic M&A sample.Practical implicationsThe results imply that the moderating role of prior acquisition experience on the relationship between SOEs and performance appears to be crucial for cross-border M&A performance compared to domestic M&A.Originality/valueThe findings of this study show SOEs increase performance, contrary to the widely held view based on agency theory that SOEs are inefficient.

Learning‐by‐doing: the experience effect in mergers and acquisitions

AbstractWe examine the relation between firms' prior acquisition experience and subsequent acquisition performance. Based on our sample firms' complete acquisition histories, we find that acquirers with prior experience in the target industry perform better in subsequent diversifying acquisitions, and that the effect is stronger in industries with higher uncertainty. The outperformance is attributable to experienced acquirers' ability to identify targets with higher synergies. Additional analysis shows that the experience effect is robust after controlling for management experience and other firm‐specific factors, and that considering small acquisitions as part of a firm's learning process is essential to the experience effect.

How Does Cultural Distance Matter in Long-term Value Creation of Cross-border Acquisitions?

ABSTRACT This article explores the role of cultural distance on long-term value creation for Chinese acquirers based on a sample of Chinese cross-border acquisition (CBA) activities from 1999 to 2017. Our finding suggests that the long-term value creation after CBA is impeded by a greater cultural distance, and such a negative correlation is more prominent among acquirers in service or strategic emerging industries. However, this negative relationship can be mitigated by the capability of prior international acquisition experience in culturally similar countries or top managers’ overseas education experience. Through drawing upon institution-, resource/capability- and industry-based views, this article takes a step toward understanding the role of cultural distance in emerging-market enterprises' (EMEs)’ international acquisitions in the long run.

Practice makes perfect? The effect of CEO and director experience on acquisition performance

AbstractThis study replicates and extends the results of Field and Mkrtchyan, who find that independent directors’ prior acquisition experience improves succeeding acquisition performance. First, using both the original and an extended sample period, we confirm their findings. Second, we extend their study by considering the effect of prior acquisition experience gained by the CEO as an executive or independent director. Similar to the effect documented for independent directors, we find that CEOs’ acquisition experience is positively associated with subsequent acquisition performance. Consistent with CEO learning, we document a greater effect on subsequent takeover performance when acquisition experience is negative.

SETTING THE “RIGHT” GOAL: POST M&A INNOVATION PERFORMANCE AND GOAL ORIENTATION

Pharmaceutical firms spend billions of dollars to develop the next breakthrough drug and to maintain their market shares. We investigate how pharmaceutical firms use mergers and acquisitions to boost their innovation performance which has been found to result in better performance outcomes. Adding to the recent research on mergers and acquisitions, we found that firms that are explicit with their R&D goal orientation from the beginning of the acquisition journey are more successful in their innovation endeavours than firms with other goal orientation. Further, the firms’ prior acquisition experience appears to aid their innovation performance. However, we found that target size can affect the post-acquisition innovation performance but has diminishing returns as target size increases. Ultimately, our findings suggest that having an explicit R&D goal orientation is really important for a healthy innovation pipeline for pharmaceutical firms.

Acquisition experience and production resource efficiency

PurposeThe purpose of this paper is to explore how the acquisition experience – an acquiring firm’s experience of acquiring and integrating the resources of an acquired firm – affects the production resource efficiency of the acquiring firm.Design/methodology/approachThe authors used data obtained from US manufacturing industries over the 1992–2014 period. The sample includes 784 acquisitions by 417 firms. The proposed hypotheses were tested through econometric analysis.FindingsResults show that the acquisition experience has a positive association with production resource efficiency. The acquisition experience is most positively associated with acquiring firms’ production efficiency when they successfully accomplished previous performance outcomes. While the literature has recognized the relatedness of acquiring and acquired firms as a contextual moderator, the interaction of the related acquisition and the acquisition experience has no impact on efficiency benefits.Originality/valueThis study enhances the understanding of how prior acquisition experience can be leveraged by acquiring firms to gain efficiency benefits in the manufacturing industry.

When firms learn from prior acquisition experience

Acquisition experience is commonly viewed as an important determinant of subsequent acquisition success. Yet, empirical evidence suggests that acquisition experience may not be positively associated with acquisition performance and could even hurt performance. In this article, we highlight specific practices that facilitate and impede learning from acquisitions and draw implications for managers. In particular, we suggest that managers (1) expand time between acquisitions, (2) implement strong governance mechanisms and top management team diversity, (3) use similar-context experience, (4) avoid herding behavior in acquisitions, and (5) minimize blind reliance on financial advisors to effectively transfer prior acquisition experience into acquisition success.

Earnouts in Acquisitions: The Impact of CEO Regulatory Focus

This empirical study investigates the impact of the CEO’s regulatory focus on the firm’s propensity to use earnouts in the consideration structure of mergers and acquisitions. While prior studies have acknowledged and examined the role of CEO cognition on various corporate strategic actions, the impact of CEO’s regulatory focus on their risk perception and hence the usage of risk mitigating instruments in M&A deals remains under-explored. Using a dataset of 369 deals in the context of United Kingdom, this study finds a positive relationship between CEO’s prevention focus intensity and usage of earnouts. Furthermore, as per the phenomenon of regulatory fit and misfit, we examine the moderating impact of situational characteristics of the acquirer's prior acquisition experience and the nature of the economic activity of the target firm on the relationship between CEO's prevention focus intensity and the propensity to use earnouts. Building on the micro-foundations of strategy, these findings contribute to the literature of corporate strategy and strategic leadership, in particular, the role of CEO in the deal structuring of mergers and acquisitions.

Organizational characteristics of cross-border mergers and acquisitions

PurposeGiven that several publicly announced international merger and acquisition deals have been abandoned in recent years, the purpose of this paper is to present a synthesis of influential articles that examine organizational characteristics of cross-border acquisition transactions. The synthesis is framed through general traits and resources, learning and prior acquisition experience, and top-level management and governance attributes. Specifically, the paper conceptualizes key organizational attributes influencing the propensity of cross-border negotiations, and the most common characteristics and post-deal effects by illustrating several case examples from around the world.Design/methodology/approachOwing to fairness and integrity principles of the literature survey studies, the paper adopts an exploratory review design to present a synthesis of several influential articles published in strategy, international business and corporate finance journals. Since case method and storytelling are the best qualitative approaches to conceptualizing extant theoretical contributions, a number of case examples—successful, delayed and abandoned—from around the world have been discussed by leveraging the case information from archival sources.FindingsDrawing on resource-based view, organizational learning, upper echelons and agency theory perspectives, the paper underscores three observations. First, organizational characteristics such as firm age, firm size, ownership structure, slack resources, marketing resources, technological intensity, export intensity and business group affiliation have different impacts on the propensity of publicly announced cross-border deals. Second, firm’s prior acquisition experience and firm’s acquisition experience in the target country have positive or moderating effects on the success of a cross-border merger. Third, top-level management characteristics such as CEO foreign nationality and CEO international career experience, and governance characteristics such as board size, the number of independent directors and directors with overseas experience, have mixed effects on the incidence of cross-border acquisitions.Practical implicationsThe paper puts forth several recommendations for top-level managers participating in cross-border acquisition negotiations, such as learning from peers in the same industry, learning from predecessors in the target country and learning from failure negotiations in the same industry and other industries.Originality/valueNested within the organizational, international business strategy and corporate finance literature, the paper presents a synthesis of influential publications that study organizational characteristics affecting the propensity of cross-border acquisitions. The cases discussed in this paper are unique examples from around the world.

Cross-border vs. domestic acquisitions: Evidence from India

We examine the domestic and cross-border acquisition decision of Indian firms in the nine-year period from 2002 to 2010, a period following economic liberalization in India. Acquisition activity, both domestic and cross-border increased over the period. We find that larger, younger firms, firms with cash on hand, firms with low leverage, and relatively overvalued firms are more likely to make an acquisition. Such firms also prefer to make a cross-border acquisition compared to a domestic acquisition. Firms with lower levels of promoter (founding shareholder) holdings, larger boards, and belonging to a business group are more likely to make an acquisition, but are indifferent between making domestic and cross-border acquisitions. Industry competition is a significant determinant of acquisition activity with firms in more competitive industries more likely to make an acquisition and more likely to make a cross-border acquisition compared to a domestic acquisition. Our results hold controlling for acquisitions by manufacturing firms, prior acquisition experience, and taking into account alternate growth strategies followed by firms.

Acquisition Motives and the Distribution of Acquisition Performance

Research summary: I examine how acquisition motives relate to the distribution of post‐acquisition performance. I argue that acquisitions motivated by operating synergies have the potential to experience greater gains than acquisitions driven by financial synergies but are harder to value and implement, making them more uncertain. Using SEC filings, conference calls and press releases to capture acquisition motives, I find that acquirers pursuing operating synergies are more likely to experience highly positive and highly negative long‐term returns than acquirers pursuing financial synergies. I also find that acquisition experience and geographic proximity to targets soften acquirers' extreme downside outcomes in operating synergy acquisitions. My theory and results suggest that approaches that emphasize average outcomes for acquirers and use industry classifications to capture acquisition motives may be incomplete.Managerial summary: Managers engage in acquisitions for various reasons. In this study, I find that reasons related to operating synergies (e.g., revenue growth through new product offerings or cost savings through economies of scale) are more likely to result in extreme high and low performance outcomes for the acquiring firm compared to reasons related to financial synergies (e.g., diversification of cash flow streams). In addition, I find that the acquirer's prior acquisition experience and the geographic proximity between the target and acquirer help soften the extreme low performance outcomes related to operating synergies. Copyright © 2017 John Wiley & Sons, Ltd.

Information Immobility and Learning in Commercial Real Estate Markets

This paper empirically tests information asymmetries and learning in global commercial real estate markets. We find that foreign investors pay a premium of 3.6%, on average, relative to local investors for comparable properties in local markets. The premiums reflect information disadvantages of foreign investors, which are not correlated with the hiring of agents, anchoring to prices in their home market and selection bias. We show that learning from prior acquisition experience significantly reduces information disadvantages of foreign investors. Foreign investors could offset their initial disadvantages relative to the first-time local investors after four acquisition experiences in local markets. Quality of learning through more distant past acquisitions, acquisitions of real estate of the same type and in the same city could also reduce information asymmetries of foreign investors. However, we find that geographic proximity does not explain information asymmetries in cross-border investments experienced by foreign investors.

The pre-acquisition process

PurposeThe purpose of this paper is to focus on the pre-acquisition process and, specifically, how the complexity involved in the transaction may drive the temporal gap between the formal announcement and the completion of the deal. The authors emphasize the time (in days) between announcement and completion.Design/methodology/approachThe empirical setting consists of the cross-border acquisitions (CBAs) of Brazilian firms by multinational corporations announced between 2008 and 2012. Using a sample of 741 acquisitions, the authors examine how institutional (cultural and regulatory) and technological complexity and the predictable mitigating effect of prior acquisition experience in Brazil all impact on the time needed for evaluating the target and negotiating.FindingsThe results show that these complexity factors do matter for hastening the process and that recent experience with acquisitions in Brazil shortens the time needed to completion.Originality/valueThis study contributes to the literature on the acquisition process and the uncertainty and complexity factors in CBA in an emerging economy.

International acquisitions by Polish MNEs. Value creation or destruction?

PurposeThe purpose of this paper is to determine the performance implications of cross-border acquisitions by Polish multinationals. Additionally, the study considers specific factors affecting acquisition performance, such as acquirer’s prior cross-border acquisition experience and the type of market (advanced versus emerging) in which the target is located.Design/methodology/approachThis study is based on a sample of 104 cross-border acquisition events in which a Polish public company, quoted on the Warsaw Stock Exchange acted as an acquiring party. The event study method was applied to determine the impact of acquisition announcements on the share price of the acquiring companies for 3-, 4- and 5-day event windows. The proposed hypotheses were additionally verified through hierarchical regression.FindingsThe research shows that a typical cross-border acquisition carried out by a Polish multinational ends in creating value. While the impact of prior cross-border acquisition experience is only significant for the shortest event window, the choice of targets from emerging markets significantly improves acquisition outcomes for all of the event windows examined.Originality/valueThe study is the first project on such a scale to focus on cross-border acquisitions by multinationals from Central and Eastern Europe to have used event study methodology. It has shown that acquirers from mid-range emerging markets, such as Poland, tend to benefit more from leveraging their ability to function in underdeveloped and dynamic institutional settings if they acquire companies operating in other emerging markets rather than those based in more developed economies.