The Pace and the Degree of Unrelated Acquisitions: the
Moderating Effects of dynamic Characteristics of
Acquisition Process on Learning Effect.
Jian Wang
University of Groningen
Faculty of economics and Business
Study: international Economics and Business
Course: master thesis
Abstract
Abstract
Abstract
Abstract
Pervious articles have reported a variety of findings about the relationship between acquisition experience and firms’ performance. This thesis tries to investigate how the acquisition experience (both foreign and domestic acquisition experience) influences the performance of acquirers, and whether its impact on the performance of acquirers is conditional on the two dynamic characteristics of acquisitions activities, namely, the pace of foreign acquisitions and the scope (the degree of unrelated acquisitions). We argue that the acquisition experience (both foreign and domestic acquisition experience) not only has influence on the performance of acquirers, but also on the pace of foreign acquisitions; there is a U-shaped relationship between acquisition experience (both foreign and domestic acquisition experience) and performance of acquirers, and the U-shaped relation is negatively moderated by the dynamic characteristics of acquisitions activities, the pace of foreign acquisitions and the scope (the degree of unrelated acquisitions).
K
KKKeywords:eywords:eywords:eywords: Acquisitions,Acquisitions,Acquisitions,Acquisitions, PerformancePerformancePerformancePerformance ofofofof acquirers,acquirers,acquirers,acquirers, DynamicDynamicDynamicDynamic characteristicscharacteristicscharacteristicscharacteristics ofofofof acquisition
acquisitionacquisitionacquisition activities,activities,activities,activities, OrganizationalOrganizationalOrganizationalOrganizational learning theory,learninglearninglearning theory,theory,theory, TimeTimeTimeTime compressioncompressioncompressioncompression diseconomies
1.
1.
1.
1. Introduction
Introduction
Introduction
Introduction
Acquisition, which is defined as a kind of firms’ activity involving in buying another firm and integrating it into their own organization, has been a popular strategy since 1990s ， especially for the international firms. Firms could expand abroad through “Greenfields” or acquisitions. Comparing to “Greenfields”, acquisitions carry several benefits. Expansion through acquisitions helps firms to get greater market power (Anand and Singh, 1997), increase shareholders’ value (Moeller et all., 2005), entry the foreign market more quickly (King et al., 2004), and obtain new knowledge and resources, especially tacit knowledge (Vermeulen and Barkema, 2001; Ahuja and Katila, 2004). However, plenty of empirical evidence shows that acquisitions are often involved in implementation problems and bad acquisition performance (Vermeulen and Barkema, 2001). As a result, it is significant for firms to figure out how they could obtain the skills and knowledge to expand successfully through acquisitions.
experience and firms’ performance (Zollo and Singh, 2004). Moreover, there are also some studies providing evidence that a non-linear relation exists between firms’ acquisition experience and their performance (Hayward, 2002; Zollo and Reuer, 2003). Nadoska and Barkema (2007) reported firms could learn from both domestic acquisitions and foreign acquisitions experience, and there is a U-shaped relationship between acquisition experience (both foreign and domestic) and the success rate of foreign acquisitions. They also argued that acquisition experience (both domestic and foreign) has an influence on the frequency of undertaking foreign acquisitions.
Following Nadoska and Barkema (2007), we study both the experience with foreign acquisitions and experience with domestic acquisitions. In our thesis, we study the following three questions: (1) how each type of acquisition experience (domestic and foreign) influence the pace of foreign acquisitions; (2) how each type of acquisition experience influences the overall performance of acquiring firms; (3) how the two dynamic characteristics of acquisition process, namely firm’s frequency of foreign acquisition and the degree of unrelated acquisitions, moderate the impact of each type of acquisition experience on the overall performance of acquirers.
Different from past research, we investigate the international acquirers’ performance not after a single acquisition, but after all the acquisitions that the acquirer made during a year; we call it the overall performance of acquirers. That is because return on assets is often used to measure acquisition performance, however usually only annual data of return on assets is available; if a firm made more than one acquisition during a specific year, it is difficult to find out to what extent an individual acquisition influences the acquirer’s performance. Using our approach, the problem described above can be avoided. Of course, our approach also carries disadvantages: we cannot capture the impact of past acquisition experience on each acquisition performance.
acquisition experiences. But Firms with little acquisition experience are more likely to apply surface similar but unsuitable routines developed from their own experience with foreign acquisitions and domestic acquisitions to their new settings, which leads to a decrease of their acquisition performance (Haleblian and Finkelstein, 1999; Nadolska and Barkema, 2007). The decline of every single acquisition performance results in the decrease of overall performance of firms. Such unsuccessful experience makes firms reconsider and adjust their existing repertories (Levitt and March, 1988). With the accumulation of acquisition experience, firms create more successful repertories and could use them in new settings successfully and effectively, which leads to the increase of acquisition performance as well as their overall performance. In addition, acquisition experience also has influence on the dynamics of acquisition activities. Firms’ developing acquisition routines and applying them to new settings can decrease the cognitive efforts dedicated to new acquisitions; in such a way they can save time spent on a single acquisition and as a result, make more acquisitions during a specific period of time. Hence, acquisition experience is positively related to the dynamics (frequency) of acquisition activity.
relationship between acquisition experience and the overall performance of acquires. If a firm expands abroad at high pace of acquisitions or if the acquisition activities are involved in a great percentage (degree) of unrelated acquisitions, it may be incapable of devoting sufficient time and effort on each acquisition, leading to the time compression diseconomies (Vermeulen and Barkema, 2002). We argue that both the pace of foreign acquisitions and the scope of acquisition activities have a negative impact on the organizations’ learning. Hence, they are likely to negatively moderate the relation between acquisition experience and the overall performance of acquirers.
The structure of this thesis is following: theories and hypotheses are presented on section two. In section three, data and method are described in detail. We discuss the results of statistic analysis in section four. Following is the discussion section, and limitations are discussed in the end of the thesis.
2.
2.
2.
2. Theory
Theory
Theory
Theory and
and
and
and hypotheses
hypotheses
hypotheses
hypotheses
2.1.
2.1.2.1.2.1. TheoryTheoryTheoryTheory
2.1.1
2.1.12.1.12.1.1 OrganizationalOrganizationalOrganizationalOrganizational learninglearninglearninglearning theorytheorytheorytheory
decision processes when facing a new acquisition (Cyert and March, 1963; Nelson and Winter, 1982).
Besides, the routines are expanded and refreshed with the increases of firms’ experience (Zollo and Winter, 2002). With the accumulation of acquisition experience, firms remove the unsuitable old routines and adding new ones (Levitt and March, 1988). Since routines are derived from firms’ prior experiences and applied automatically to new settings, sometimes it may lead to performance problems (Levitt and March, 1988). Basically, bad performance will make firms reconsider and fine-tune some of their routines (March and Simon, 1958). And such unsuccessful experience, in turn, teaches firms to distinguish the situations where their routines are fitted and can be applied successfully and where they cannot (Nadolska and Barkema, 2007). We use the concepts of organizational learning theory to build hypotheses 1 and 2 (in section 2.2).
2.1.2
2.1.22.1.22.1.2 TimeTimeTimeTime compressioncompressioncompressioncompression diseconomiesdiseconomiesdiseconomiesdiseconomies
students in one-year program tended to accumulate less stock of knowledge than students did in two-year program. This concept can also be used to explain firms’ foreign expansion (Vermeulen and Barkema, 2002). In order to make a successful acquisition, firms have to screen, select targets, takeover firms and integrate them carefully (Barkema et al, 1997); all of these activities take considerable amount of time. Besides, when firms enter into an unfamiliar foreign market, they also need time to adapt to the new environment and select appropriate routines or fine-tune their old routines (Nelson and Winter, 1982). So if top management can not devote enough time and attention to every acquisition, in other words, if capacity of a firm to absorb expansion is constraint (Vermeulen and Barkema, 2002), the acquirers’ performance may decrease. The logic of the time compression diseconomies concept and organizational learning theory will be used to develop hypotheses 3 and 4 in section 2.2.
2.2
2.22.22.2 HHHHypothesesypothesesypothesesypotheses
Organizational learning theory implies that firms could learn from the acquisition experience, forming and developing their own routines, and using it automatically into their later settings (Levitt and March, 1988; Gavetti and Levinthal 2000).
different cultural and institutional setting, different languages and beliefs (Lane, 1995).
acquisitions per year. Based on the theory described above, we propose the following hypotheses:
H
HHHypotheses1ypotheses1ypotheses1ypotheses1 1
111aaaa:::: TheTheTheThe pacepacepacepace ofofofof foreignforeignforeignforeign acquisitionsacquisitions (=numberacquisitionsacquisitions (=number(=number(=number ofofofof foreignforeignforeignforeign acquisitionsacquisitionsacquisitionsacquisitions perperperper year)year)year)year) increases
increasesincreasesincreases asasasas aaaa functionfunctionfunctionfunction ofofofof thethethethe firmfirmfirmfirm’’’’ssss experienceexperienceexperienceexperience withwithwithwith foreignforeignforeignforeign acquisitionsacquisitionsacquisitionsacquisitions.... 1b
1b1b1b:::: TheTheTheThe pacepacepacepace ofof foreignofof foreignforeignforeign acquisitionsacquisitionsacquisitionsacquisitions (=number(=number of(=number(=number ofofof foreignforeignforeignforeign acquisitionsacquisitionsacquisitionsacquisitions perperperper year)year)year)year) increases
increasesincreasesincreases asasasas aaaa functionfunctionfunctionfunction ofofofof thethethethe firmfirmfirmfirm’’’’ssss experienceexperienceexperienceexperience withwithwithwith domesticdomesticdomesticdomestic acquisitions.acquisitions.acquisitions.acquisitions.
unsuccessful acquisitions, which helps them to develop new and more effective repertoires (Levitt and March, 1988). And with the increase of foreign acquisitions experience, firms finally would overcome their inability to determine what part of routines abstracted from previous foreign acquisitions could be used in new settings successfully and effectively (Nadoska and Brekema, 2007), improving the performance of every individual acquisition. As a result, the overall performance of the acquirer rises too. Hence, we expect there is a U-shaped relation between experience with foreign acquisitions and the overall performance of acquirers.
of acquirers. Our hypotheses 2a and 2b are following: Hypothesis Hypothesis Hypothesis Hypothesis2222 2a
2a2a2a:::: TheTheTheThe relationshiprelationshiprelationshiprelationship betweenbetweenbetweenbetween experienceexperienceexperienceexperience withwith foreignwithwith foreignforeignforeign acquisitionacquisitionacquisitionacquisitionssss andandandand thethethethe overalloveralloveralloverall performance
performanceperformanceperformance ofofofof acquireracquireracquireracquirer isisisis curvilinearcurvilinearcurvilinearcurvilinear (U-shaped).(U-shaped).(U-shaped).(U-shaped). 2b
2b2b:::: The2b TheTheThe relationshiprelationshiprelationshiprelationship betweenbetweenbetweenbetween experienceexperienceexperienceexperience withwith domesticwithwith domesticdomesticdomestic acquisitionacquisitionacquisitionacquisitionssss andandandand thethethethe overall
overalloveralloverall performanceperformanceperformanceperformance ofofofof acquireracquireracquireracquirer isisisis curvilinearcurvilinearcurvilinearcurvilinear (U-shaped)(U-shaped)(U-shaped)(U-shaped)
their prior acquisitions, or do not know how to use the routines successfully in a new setting. In conclusion, the more acquisitions a firm makes during a limited period of time, the less likely it is that the knowledge developed through the acquisition experience can be analyzed, understood, codified, absorbed and transformed into routines which can be applied successfully in subsequent acquisitions. This may lead to limited learning from the past which in turns means likely misapplication of acquisition practices to new situations or inability to develop refined routines for successful acquisitions. As a result, both individual acquisition performance and overall acquirer’s performance will deteriorate. All this implies that the faster pace of foreign acquisitions has a negative moderating effect on the relation between acquisition experience (both foreign and domestic acquisition experience) and acquirers’ performance. Our hypotheses 3a and 3b are following:
Hypothesis HypothesisHypothesisHypothesis 3333 3a
3a3a:::: A3a AAA fasterfasterfasterfaster pacepace ofpacepaceofofof foreignforeignforeignforeign acquisitionsacquisitionsacquisitionsacquisitions (=number(=number(=number(=number ofofofof foreignforeignforeign acquisitionsforeignacquisitionsacquisitionsacquisitions perperperper year)year)year)year) negatively
negativelynegatively moderatesnegatively moderatesmoderatesmoderates thethethethe relationrelationrelationrelation betweenbetweenbetweenbetween foreignforeign acquisitionforeignforeign acquisitionacquisitionacquisition experienceexperienceexperienceexperience andandandand thethethethe overall
overalloveralloverall performanceperformanceperformanceperformance ofofofof acquiracquiracquiracquireeeerrrr.... 3b
3b3b:::: A3b AAA fasterfasterfasterfaster pacepace ofpacepaceofofof foreignforeignforeignforeign acquisitionsacquisitionsacquisitionsacquisitions (=number(=number(=number(=number ofofofof foreignforeignforeign acquisitionsforeignacquisitionsacquisitionsacquisitions perperperper year)year)year)year) negatively
negativelynegatively moderatesnegatively moderatesmoderatesmoderates thethethethe relationrelationrelationrelation betweenbetweenbetweenbetween domesticdomestic acquisitiondomesticdomestic acquisitionacquisitionacquisition experienceexperienceexperienceexperience andandandand thethethethe overall
compression diseconomies and result in a decreasing acquirer’s performance. Hence, we expect the greater degree of unrelated acquisitions (=share of unrelated acquisitions from total (related + unrelated) acquisitions) has a negatively moderating effect on the relation of the overall performance of acquirers and the acquisition experiences (both foreign and domestic acquisition experience). Here are our hypotheses 4a and 4b:
Hypothesis HypothesisHypothesisHypothesis 4444 4a
4a4a4a:::: AAAA greatergreater degreegreatergreater degreedegreedegree ofofofof unrelatedunrelatedunrelatedunrelated acquisitionacquisitionacquisitionacquisitionssss (=share(=share(=share(=share ofofofof unrelatedunrelatedunrelatedunrelated acquisitionsacquisitionsacquisitionsacquisitions from
fromfromfrom totaltotaltotaltotal (related(related(related(related ++++ unrelated)unrelated)unrelated)unrelated) acquisitions)acquisitions)acquisitions)acquisitions) negativelynegativelynegativelynegatively moderatesmoderatesmoderatesmoderates thethethethe relationrelationrelationrelation between
betweenbetweenbetween foreignforeignforeignforeign acquisitionacquisitionacquisitionacquisition experiencexperiencexperiencexperienceeee aaaandndndnd thethethethe overalloveralloveralloverall performanceperformance ofperformanceperformanceofofof acquireracquireracquireracquirer.... 4b
4b
4b4b:::: AAAA greatergreatergreatergreater degreedegreedegreedegree ofofofof unrelatedunrelatedunrelatedunrelated acquisitionacquisitionacquisitionacquisitionssss (=share(=share(=share(=share ofof unrelatedofofunrelatedunrelatedunrelated acquisitionsacquisitionsacquisitionsacquisitions from
fromfromfrom totaltotaltotaltotal (related(related(related(related ++++ unrelated)unrelated)unrelated)unrelated) acquisitions)acquisitions)acquisitions)acquisitions) negativelynegativelynegativelynegatively moderatesmoderatesmoderatesmoderates thethethethe relationrelationrelationrelation between
betweenbetween domesticbetweendomesticdomesticdomestic acquisitionacquisitionacquisitionacquisition experienceexperienceexperienceexperience andandandand thethe overallthetheoveralloveralloverall performanceperformanceperformanceperformance ofofofof acquireracquireracquireracquirer....
3.
3.
3.
3. Methodology
Methodology
Methodology
Methodology
3.
3.3.3.1111.... SSSSample:ample:ample:ample:
most of the target firms of cross-border acquisitions were European firms. On average, the firms in our sample had 147,387 employees in the year of 2008. They were involved in various industries, such as oil service, chemical product, electronic product, retail and food product. The sample firms made 1393 acquisition totally from 1999 to 2009. And on average each firm made five acquisitions per year, and had experience with 15 domestic acquisitions and 41 foreign acquisitions.
3.2
3.23.23.2.... VVVVariablesariablesariablesariables
(1) Dependent variables:
The pace of foreign acquisitions
The pace of foreign acquisitions indicates the frequency of which a firm made foreign acquisitions. We measure it as the number of foreign acquisitions made by individual firm in each year.
The overall performance of acquirer
SIC code is the same. We calculate the industry average ROA using the number of firms to divide the sum of ROA. Here we use the following formula to calculate the change of the overall performance of acquires:
Overall performance of acquirer= (ROA(t+1)a– ROA(t+1)i) - (ROAta– ROAti)
t stands for the time (year) that we focus on; a stands for the acquirer;
i stands for industry.
(2) Independent variables
Experience with foreign acquisitions
the non-linear relation between experience with foreign acquisition and the overall performance of acquirers (Nadolska and Barkema, 2007).
Experience with domestic acquisitions
Just like the experience with foreign acquisitions, it is measured as the number of domestic acquisitions that a firm has made 2 years prior to the focal year. And the square term of experience with domestic acquisitions is applied to measure the nonlinear relationship between domestic experience and the overall performance of acquires.
Pace of foreign acquisitions
Pace of foreign acquisitions is also an independent variable in our moderating effect analyses. As mentioned in the dependent variable, it indicates the number of foreign acquisitions made by an individual firm in each year.
The degree of unrelated acquisitions
(3) Control variables The size of acquiring firm
Previous research found that large firms are more likely to perform better than smaller one, as a result of economies of scale or scope (Havenman, 1993; Hannan and Freeman, 1977). Besides, it is believed that large firms have more financial abilities and human resources to expand, so it may have a higher pace of acquisitions (Hoskisson et al, 1994; Nadoska and Barkema, 2007). As a result we control the size of acquiring firms, and measure it using the number of employees of the firms.
Firm’s age
We obtain the information about firms’ age from the Amadeus database. It is believed that firms which exist for longer time have more experience, so we add the acquiring firms’ age into our models as a control variable.
Firm-specific assets
the pace of acquisitions. Hence we control it in our models.
Acquiring firm’s financial structure
It is measured through debt ratio (total liability to assets). We control it in our models because it is believed that it has influence on a firm’s capability of expansion and performance (Jensen, 1986).
3.3
3.33.33.3 StatisticalStatisticalStatisticalStatistical analysisanalysisanalysisanalysis
Negative binomial regression
Our dependent variable “pace” (the number of foreign acquisitions in a particular year) is a count number with positive integer and zero only, which does not satisfy the linear regression model assumption of homoscedastic and normally distributed error terms. The Poisson regression is suitable for count data analysis (Blundell et al, 1995). However, it has strict requirement that the mean and variance to be equal. As a result, we apply negative binomial regression which could also deal with count data but no such assumptions (Nadolska and Barkema, 2007).
The equation for the negative binomial analysis: Y
=
=
=
=
eβ0+β1X+β2Z1+β3Z2+β4Z3+β5Z4Here, Y is the pace of foreign acquisitions of firms; β0is the constant term; X stands
for experience with foreign (domestic) acquisitions of firms; Z1 stands for size of
Z4stands for financial structure of firms.
Performance analysis and moderating effects analysis
Our hypotheses 2a and 2b is about performance analysis; hypotheses 3a, 3b, 4a and 4b are about moderating effects analysis. And the fixed effects panel regression is applied to perform these analyses .The square terms of acquisition experience (both domestic and foreign) are used to test the U-shaped relationship between acquisition experience (both domestic and foreign) and performance of acquirers. Our hypotheses 3 and 4 refer to the negative moderating effects of pace and the degree of unrelated experience on the relation between acquisition experience and the performance of acquirers respectively. Interaction terms are usually used by prior articles to test the moderating effect (Vermeulen and Barkema, 2002; Reus and Lamont, 2009). Therefore, in our moderating effects analysis, we add the interaction terms based on the performance analysis.
The equation for performance analysis: y’= β1X1+β2X2+β3Z1+β4Z2+β5Z3+β6Z4+β0
Here, y’ is the overall performance of acquires; X1stands for experience with foreign
(domestic) acquisitions of firms; X2is the square of experience with foreign (domestic)
acquisitions of firms; β0,,Z1, Z2, Z3, Z4 are the same as those in negative binomial
The equation for moderating effects analysis:
y’ = β1X1+β2X2+β3X3+β4X4+β5X5+β6Z1+β7Z2+β8Z3+β9Z4+β0
Here X3is the pace of foreign acquisitions for hypotheses 3a and 3b, and is the degree
of unrelated acquisitions for hypotheses 4a and 4b. X4 is the interaction term
“experience with foreign (domestic) acquisitions* pace of foreign acquisitions” for hypothesis 3a (3b); it is the interaction term “experience with foreign (domestic) acquisitions* the degree of unrelated acquisitions” for hypothesis 4a (4b). X5 is the
interaction term “experience with foreign (domestic) acquisitions2* pace of foreign
acquisitions” for hypothesis 3a (3b); it is the interaction term “experience with foreign (domestic) acquisitions2* the degree of unrelated acquisitions” for hypothesis 4a (4b).
The rest terms are interpreted the same as those in the equation for the performance analysis.
4
4
4
4.... Results
Results
Results
Results
age have positive sign, implying these two control variables positively related to the pace of foreign acquisitions.
T
TTTableableableable 1111 CorrelationsCorrelationsCorrelationsCorrelations means,means,means,means, standardstandardstandardstandard deviationdeviationdeviationdeviation
Mean St. Deviation 1 2 3 4 5 6 7 8 9 1. Performance 0.13 4.56 1.00
2. Domestic acquisition experience 6.86 6.89 -0.05 1.00 3. Foreign acquisition experience 22.80 19.40 0.21 0.13 1.00 4. Pace 4.28 3.07 0.01 -0.08 0.20 1.00 5. The degree of unrelated acquisition 0.64 0.29 -0.01 0.03 0.41 0.22 1.00 6. Firm size 129664 11026 -0.01 -0.15 0.01 0.16 -0.02 1.00 8. Debt ratio 1.70 0.54 -0.18 -0.28 -0.15 -0.07 0.02 -0.24 1.00 9. Firm-specific assets 0.31 0.21 0.02 -0.01 0.19 -0.17 0.07 0.23 0.26 1.00 11..firm’s age 67.71 48.69 0.09 -0.31 0.37 0.17 0.18 -0.03 0.13 -0.04 1.00
experience is not significant. Hence the hypothesis 1b is not supported.
Table 2
Model 1 Model 2 Model 3
Control variables
Firm size 1.55e-06***(5.76e-07) 1.05e-06***(5.55e-07) 1.52e-06(5.96e-07)** Debt ratio -0.143(0.123) -0.091(0.122) -1.491*(0.127) Firm-specific assets -0.793**(0.312) -1.023***(0.314) -0.785**(0.314)
Age 0.003**(0.001) 0.002(0001) 0.003***(0.001)
Intercept 1.342***(0.239) 1.146***(0.242) 1.374***(0.287) Test of hypotheses
Foreign acquisition experience 0.011***(0.003)
Domestic acquisition experience 0.002(0.009)
No. of observation 275 275 275
Log-likelihood -508.157 -502.936 -508.138
*ρ<0.10, **ρ<0.05, ***ρ<0.01
Table 3
Model 4 Model 5 Model 6
Control variables
Firm size -0.00001***(8.48e-06) -0.00002**(8.08ee-06) -0.00002*(8.20e-06) Debt ratio -6.079(1.220) -5.500***(1.165) -5.887***(1.189) Firm-specific assets -6.860(4.760) -6.054(4.818) -6.235(4.601)
Age 0.140 (0.154) -0.972***(0.292) -0.083 (0.274)
Intercept 4.593(10.948) 72.067***(18.816) 17.149 (18.209) Test of hypotheses
Foreign acquisition experience 0.491***(0.111) Foreign acquisition experience2 -0.003**(0.001)
Domestic acquisition experience 0.718**(0.290)
Domestic acquisition experience square -0.026***(0.008)
R-square 0.181 0.286 0.248
*ρ<0.10, **ρ<0.05, ***ρ<0.01
The statistic results of our moderating analysis are reported on the table 4. Hypothesis 3a and 3b predict that the pace of foreign acquisitions negatively moderates the impact of foreign acquisition experience and domestic acquisition experience on overall performance of acquirers respectively. Interaction terms are involved in to test the moderating effects. As can be seen from Model 7, the estimates on foreign acquisition experience and foreign acquisition experience2 are significantly positive
(p<0.01) and significantly negative (p<0.01) respectively. While, the estimates on the interaction terms “foreign acquisition experience*pace” and “foreign acquisition experience2* pace” are significantly negative (p<0.05) and significantly positive
interaction terms “domestic acquisition experience*pace” and “domestic acquisition experience2*pace” are significantly positive (p<0.01), negative (p<0.01),
negative(p<0.05) and positive (p<0.01) respectively, which implies that pace of acquisitions has a negative moderating effect on the relationship between domestic acquisition experience and the overall performance of acquirers, consistent with our hypothesis 3b.
The hypothesis 4a and 4b predict that the degree of unrelated acquisitions negatively moderates the effect of foreign acquisition experience and domestic acquisition experience on the overall performance of acquirers respectively. Interaction terms are included in the Models 9 and 10 to test hypotheses 4a and 4b. In Model 9, the estimates on interaction terms “foreign acquisition experience* the degree of unrelated acquisitions” and “foreign acquisition experience2* the degree of unrelated
acquisitions”, are not significant, rejecting the hypothesis 4a. Nevertheless, the estimate on the degree of unrelated acquisitions is significantly negative (p<0.05). Seemly, in Model 10, the estimates on interaction terms, “domestic acquisition experience* the degree of unrelated acquisitions” and “domestic acquisition experience2* the degree of unrelated acquisitions”, are insignificant, rejecting the
Table 4
Model 7 Model 8 Model 9 Model 10 Control variables
Firm size 3.68e-06 (3.06e-06) -8.29e-06(7.47e-06) -0.00001(8.79e-06) -0.00001*(9.02e-06) Debt ratio 1.387**(0.647) 1.959*(1.074) 2.030(1.269) 1.847(1.350) Firm-specific assets -3.415**(1.746) 0.026(4.050) -4.482(5.046) 0.380(5.290) Age -0.002(0.007) -0.146(0.249) -0.163 (0.286) -0.431 (0.338) Intercept -4.267**(1.653) 5.513(16.598) -7.212(18.795) 30.380(22.123) Test of hypotheses Pace -0.222（0.149） 0.145(0.284)
The degree of unrelated acquisition -8.491**(3.884) -11.897**(4.481) Foreign acquisition experience 0.347***（0.068） 0.214(0.586)
Foreign acquisition experience2 -0.004***（0.001） 0.002(0.025)
Domestic acquisition experience 1.053***(0.303) 0.331**(0.168) Domestic acquisition expereience2 -0.046***(0.010) -0.006*(0.003) Pace*foreign acquisition experience -0.026**(0.112)
Pace*foreign acquisition experience2 0.0004***(0.001)
Pace*domestic acquisition experience -0.123**(0.052) Pace*domestic acquisition experience2 0.006***(0.002)
The degree of unrelated acquisition*foreign acquisition experience -0.622(0.844) The degree of unrelated acquisition*foreign acquisition experience2 -0.385(0.035)
The degree of unrelated acquisition *domestic acquisition experience -0.112(0.150) The degree of unrelated acquisition*domestic acquisition experience2 0.003(0.003)
R2 0.277 0.210 0.187 0.181
*ρ<0.10, **ρ<0.05, ***ρ<0.01
Figure 1
X axis stands for the foreign acquisition experience; Y axis stands for pace of foreign acquisitions; Z axis stands for the overall performance of acquirer
Figure 1 illustrates the estimated relationship between the pace of foreign acquisitions, foreign acquisition experience and the overall performance of acquirers. Consistent with the theoretical prediction, there is a curvilinear (inverted U shape) relationship between foreign acquisition experience and the acquirers’ performance when the pace of foreign acquisitions at a low level. And with the increase of pace, the inverted U shape firstly disappear and then turns into U shape at the high level of pace, which supports our prediction that the faster pace of foreign acquisitions negatively moderates the relationship between foreign acquisition experience and the overall performance of acquirers.
X axis stands for the domestic acquisition experience; Y axis stands for pace of foreign acquisitions; Z axis stands for the overall performance of acquirer
Figure 2 illustrates the estimated relationship between the pace of foreign acquisitions, domestic acquisition performance and the overall performance of acquirers. As predicted by theory, figure 2 shows a curvilinear (inverted U shape) relationship between domestic acquisition experience and the overall performance of acquirers when the pace of foreign acquisitions is at a low level. And just as our prediction, with the increase of the frequency of foreign acquisitions, the inverted U shape firstly disappears and then turns into U shape, which proves that the faster pace of foreign acquisitions negatively moderates the relationship between domestic acquisition experience and the overall performance of acquirers.
5.
The main idea of this thesis is that the dynamics of acquisition activities (pace of foreign acquisition and the degree of unrelated acquisitions) negatively moderate the learning effects of firms. We argue that firms can not only learn from their experience with foreign acquisitions, but also learn from their experience with domestic acquisitions. And the benefits that firms get from their acquisition experience, both foreign and domestic, are moderated by the dynamic characteristics of their acquisition activities--- the pace of foreign acquisitions and the degree of unrelated acquisitions.
may be not able to devote enough time and attention on screening, selecting and implementing acquisitions, decreasing firms’ absorptive capability. As a result, the overall performance of acquirers declines and the time compression diseconomies appear. Seemly, firms involved in too many unrelated acquisitions may also decrease their absorptive capability, leading to time compression diseconomies.
Three of our hypotheses, 1b, 4a and 4b, were not supported by the statistic results. Hence, the domestic acquisition experience did not have a significant impact on the frequency of foreign acquisitions; the greater degree of unrelated acquisition experience has a direct effect on the overall performance of acquirers rather than a moderating effect. The failure to support these hypotheses may be because of the several limitations of our thesis that will describe in next section.
effects.
Besides, our thesis also provides some suggestions to international firms. Firstly, for the firms with little acquisition experience, applying routines that are built on pervious acquisitions to a new setting may result in a decrease of performance, because it is complex and difficult to decide which parts of routines can apply to new settings successfully and which can not. Moreover, the dynamic characteristics of acquisition activities sometimes may negatively influence their overall performance of acquirers. Finally, if firms have involved in a lot of unrelated acquisitions and they do not want to experience a decline of performance, it is better for those firms to limit their frequency of foreign acquisitions to some extent.
6.
6.
6.
6. Limitation
Limitation
Limitation
Limitationssss
Obviously our thesis suffers from a number of limitations. Firstly, our thesis only analyzed the acquisitions of European firms. The learning patterns of firms from other regions may be different from the one we illustrated in this thesis. As results, our findings may not be generalized to the firms in other countries.
the firms in our sample may perform better that those which went to bankrupt. And the firms that did not survive may be more likely to misapply routines, implying that their learning curve may be different from the one we discussed in our thesis.
Thirdly, firms’ absorptive ability and the probability that time compression diseconomies happens are various in different firms. It is may depends on the firms’ organizational characteristic (Barkema and Vermeulen, 1998), such as firms’ current structure and their top management’s ability (Eisenhardt and Schoonhoven, 1990). We did not control the effects of such factors, as they are difficult to measure.
Another limitation is that we did not consider the situation that firms may learn from other resources. Johanson and Vahle (1977) argued that export, licensing, Greenfield and sale agents are also the learning resources for firms. Besides, firms also could learn from other firms’ experience in the same industry. We did not control those learning resources in our model as it is difficult to capture relevant data.
R
R
R
Reference
eference
eference
eference
Ahuja G. and Katila R. (2004), “Where do resources come from? The role of idiosyncratic situations”,Strategic Management Journal 25(8/9): 887–908.
Anand, J. and Singh, H. (1997) “Asset redeployment, acquisitions and corporate strategy in declining industries”,Strategic Management Journal 18(6): 99–118.
Barkema H.G., Bell J.H.J. and Pennings J.M. (1996), “Foreign entry, cultural barriers, and learning”, Strategi Management Journal 17(2): 151 - 166.
Barkema, H.G., Shenkar, O., Vermeulen, F. and Bell, J.H.J. (1997), “Working abroad, working with others: how firms learn to operate international joint ventures”, Academy of Management Journal 40(2): 426–442.
Barkema H. G. and Vermeulen F. (1998), “International expansion through start-up or acquisition: a learning perspective”,Academy of Management Journal 41: 7 -26. Bruto ,G., Oviat , B. and Whit, M., (1994), “Performance of Acquisitions of Distressed Firms”, Academy of Management Journal, 37:973-989
Birkinshaw J. (1997), “Entrepreneurship in multinational corporations: the characteristics of subsidiary initiatives”, Strategic Management Journal 18(2): 207-229.
Birkinshaw J. and Hood N (1998) “multinational subsidiary evolution: capability and charter change in foreign owned subsidiary companies”, Academy of Managment Review 23: 773-795.
Blundell, R., Griffith, R. and Van Reenen, J. (1995) “Dynamic count data models of technological innovation”,The Economic Journal 105(429): 333–344.
Brouthers, K.D. and Brouthers, L.E, Acquisition or greenfield start-up? Institutional, cultural and transaction cost influences, Strategic Management Journal, 21(2000): 89-97.
Cohen. M. P. Bacdayan (1994), “Organizational routines are stored asprocedural memory: Evidence from a laboratory study”,Organ.Sci. 5 554-568.
learning and innovation”,Administrative Science Quarterly 35: 128- 152.
Cocharan, P. and Wood, R. (1984), “Corporate Social Responsibility and Financial Performance”,Academy of Management Journal, 27:42-56
Cyert, R.M. and March, J.G. (1963) “A Behavioral Theory of the Firm”, Prentice-Hall: Englewood Cliffs, NJ.
Delios, A. and Beamish, P.W. (2001), “Survival and profitability:the roles of experience and intangible assets in foreign subsidiary performance”, Academy of Management Journal 44(5): 1028–1038.
Dierickx, I. and Cool, K. (1989) “Asset stock accumulation and sustainability of competitive advantage”,Management Science 35(12): 1504–1511.
Finkelstein, S. and Haleblian, J. (2002), “Understanding acquisition performance: the role of transfer effects”,Organization Science 13(1): 36–47.
Gavetti, G.. D. Levinthal. (2000), “Looking forward and look backward:Cognitive and cxperienlial search”, Admin. Sci. Quari. 45 113-137
Greenwood, R. and Hinings, C.R. (1993) ‘Understanding strategic change: the contribution of archetypes’, Academy of Management Journal 36(5): 1052–1062. Hitt M. A., Hoskisson R. E. and Kim H. (1997), “International diversification: effects on innovation and firm performance in product-diversified firms”, Academic of Management Journal 40: 767-798.
Hayward M. (2002), “When Do Firm Lern from Their Acquisition Eperience? Evidence from 1990-1995”， Strategic Mangement Journal, 23:21-39
Hoskisson R. E. and Hitt M. A., (1990), “Antecedents and performance outcomes of diversification: a review and critique of theoretical perspective”, Journal of Management 16: 461-509.
Hannan M. T. and Freeman J. (1977), “The population ecology of organizations”, American Journal of Sociology 82: 929-964.
multinational strategy”, Administrative Science Quarterly 13: 47-64.
Haveman H. A. (1993), “Organizational size and change: diversification in the savings and loan industry after deregulation”, Administrative Science Quarterly 38: 20-50
Haspeslagh, P. and Jemison, D. (1991), “Managing Acquisition: Creating value through Corporate Renewal”,new work: Free Press
Studies 19(3): 411–432.
Hoskisson R.E., Hitt M.A. and Ireland R. D. (1994), “A mid-range theory of the interactive effects of international and product diversification on innovation and performance”, Journal of Management 20: 297 - 326.
King, D.R., Dalton, D.R., Daily, C.M. and Covin, J.G. (2004), “Meta-analyses of post acquisition performance: indications of unidentified moderators”, Strategic Management Journal 25(2):187–200.
Lahey, K.E. and Conn, R.L. (1990), “Sensitivity of acquiring firms’returns to alternative model specification and disaggregation”, Journal of Business and Accounting 17(3): 421–439.
Levitt, B. and March, J.G. (1988), “Organizational learning”, Annual Review of Sociology 14: 319–340.
Lane C. (1995), “Industry and Society in Europe: Stability and Change in Britain, Germany, and France”,Edward Elgar: Aldershot, U.K.
Lin, F. J. (2008), “Solving Multicollinearity in the Process of Fitting Regression Model Using the Nested Estimate Procedure”.Quality & Quantity (2008) 42:417–426 Jensen, M.C. and R.S. Ruback (1983), “the Market for Corporate Control: The Scientific Evidence”,Journal of Financial Economics, Vol. 11 (Special Issue), pp. 5-5 March. J. G. and H. A, Simon (1958), “Organizations”,Wiley, New York.
Jensen M. C. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”,American Economy Review 76: 323-329.
Nelson, R.R. and Winter, S.G. (1982), “An Evolutionary Theory of Economic Change”,The Belknap Press of Harvard University Press: Cambridge, MA.
Ooghe, H., Laere, E., and De Langhe, T. (2006), “Are Acquisitions Worthwhile? An Empirical Study of the Post-Acquisition Performance of Privately Held Belgian Companies”, Small Business Economices.
Palich, L., Cardinal, L. and Miller, C. (2000), “Curivilinearity in The Diversification performance Linkage: an Examination of over Three Decades of Research”, Strategic Management Journal, 21: 155-174.
Reuer J., Shenkar, O. and Ragozzino R. (2004), “The Double-Edged Sword of Cultural Distance in International Acquisitions”, Journal of International Business Studies, 25: 1-19.
Salter, M. and Weinhold, W. (1979), “Diversification Through Acquisition: Strategies for Creating Economic Value”,The Free Press, New York.
Singh, H. and Montgomery, C. (1987), “Corporate Acquisition Strategies and Economic Performance”,Strategic Management Journal, 8: 377-389
Srikanth, K. (2005), “Acquisition Experience and Value Creation”, Academy of Management Best Conference Paper, 2005 BPS: G1.
Uhlenbruck K. (2004), “Developing acquired foreign subsidiaries: the experience of MNEs in transition economie”’, Journal of International Business Studies 35(2): 109–123.
Vermeulen F. and Barkema HG. (2001), “Learning through acquisitions”,Academy of Management Journal 44: 457-476.
Yiu D., Makino S, The Choice Between Joint Venture and Wholly Owned Subsidiary: An institutional Perspective, Organization Science, November-December 2002, pg. 667-683.
Zoll M. and Reuer J., (2003) “Suoerstitious Learning in Corporate Acquisitions”, INSEAD Working Paper: 3-31
capabilities”,Organization Science 13(3):339–353.
Zollo, M. and Singh, H. (2004), “Deliberate learning in corporate acquisitions: post-acquisition strategies and integration capability in US bank mergers”, Strategic Management Journal 25(13): 1233–1256.
IIIInternet
nternet
nternet
nternet WebPages
WebPages
WebPages
WebPages
Amadeus TOP 250,000, “Analyze Major Database from European Sources”.
www.amadeus-bvd.com
Zephyr, “Mergers and Acquisition from European Sources”.www.zephyr-bvd.com
