MASTER THESIS BUSINESS ADMINISTRATION STRATEGIC INNOVATION MANAGEMENT
BOARD CHARACTERISTICS AND FIRM’S
ACQUISITION TYPES IN CROSS-BORDER
DEAL-MAKING
Author: Martijn Oude Luttikhuis 1st supervisor: Dr. K.J. McCarthy1
2nd supervisor F. Noseleit2
University of Groningen Faculty of Economics and Business MSc BA Strategic Innovation Management
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ABSTRACT
This study investigates the impact of various board characteristics on the type of cross-border acquisition companies are likely to pursue. Moreover, the effect of the acquisition type on the performance after a cross-border acquisition is tested. The acquisition types are categorized in three main groups, depending on the industry of the acquiring and target company. Relying on data from 1,040 firms from all over the world, we find that firms with a large board mainly consisting of domestic managers that are relatively old and high-educated are most likely to pursue explorative cross-border acquisitions. Boards that have opposing demographic traits are more likely to pursue exploitative cross-border acquisitions. Moreover, an important finding is that exploitative cross-border acquisitions have a higher volatility in performance than explorative cross-border acquisitions. This may indicate that companies try to reduce risk associated with cross-border acquisitions by acquiring more related instead of unrelated target firms. The study reinforces the importance of board compositions with regard to the decisions they make and suggest further research in this context.
Keywords
Cross-border Acquisition, Boards, Risk, Exploitation, Exploration, Post-Acquisition Performance
INTRODUCTION
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The outcome of an acquisition highly depends on the company’s board. A board could be defined as a small part of senior managers, consisting of a Chief Executive Officer (CEO), president, vice president, and the senior managers (Li et al., 1999), and it is amongst others responsible for decisions related to acquisitions. Our interest lies in the role of boards, and not in the role of individual leaders. Reason for this is that in large, complex organizations – which is generally the case for firms involved in cross-border acquisitions –, responsibilities are unlikely to be the domain of only one individual (Drucker, 1974). In addition, Gupta (1988) notes that if boards – rather than CEOs – are analyzed, a stronger relationship with strategy will be found. A stream of literature, largely originating from the upper echelon perspective formulated by Hambrick and Mason (1984), have examined the role of boards in important organizational decisions (e.g. Murray, 1989; Finkelstein and Hambrick, 1990; Hambrick, Cho, and Chen, 1996; Boerner et al. 2011). Hambrick and Mason (1984) argue that characteristics of members of a board influence the organizational choices. Using this demographic information can be useful in evaluating boards, since there is no psychological measure for some important variables. The research reported here extends this line of research by giving insights in the relation between demographic and experience-related variables on the one hand, and the type of cross-border acquisition a firm is engaged in on the other hand.
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the board has on this decision. The high complexity involved in these decisions makes it useful to provide a better understanding of certain relations.
Acquisitions can be distinguished based on many variables. One important variable in this regard is the type of an acquisition, which impacts post-acquisition performance according to many researchers (e.g. Salter and Weinhold, 1979; Singh and Montgomery, 1987; Shelton, 1988). Type of acquisition in this study indicates whether the acquirer and the target firm are in the same sub-classification of an industry, in the same industry, or unrelated based on their industry.
The purpose of this study is to extend previous work on the nature of the relationship between board composition and organizational outcomes in two ways. First, studies about the relationship between board composition and organizational outcomes often only deal with domestic takeovers or do not make any distinction at all. This study will focus on
cross-border acquisitions. Second, this study investigates the firm’s likelihood to acquire particular
type of firms based on their industrial differences. By examining demographic and experience-related traits of boards, we hope to gain insights in composing the acquiring firm’s optimal board with regard to the firm’s most desired type of cross-border acquisition. We will finally try to link the acquisition type to the post-acquisition performance.
Depending on data from 1,040 firms worldwide, we found that the more related the industry of the acquiring and target firm, the higher the performance. No support was found for the relation between tenure and board experience, and the type of cross-border acquisition. We found (partly) support for the relation between the background characteristics and the type of acquisition a company is likely to pursue. Results about this relation were mostly counterintuitive. In explaining these contradicting results, we examined the risk involved in a cross-border acquisition by calculating the volatility in cross-border post-acquisition performance. Although risk in unrelated versus related acquisitions is likely to be higher, results showed that volatility in related international acquisitions is higher than in unrelated international acquisitions. Our contribution is that boards of firms may accommodate high risk by choosing for high related cross-border acquisitions. This implies that companies selecting board members should be aware of the opposing effect of risk in the type of acquisition. We found no direct support for the relation between any of the board characteristics and the performance after cross-border acquisitions.
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post-cross-border acquisition performance. Next, Chapter 4 discusses the methodology on which we rely. The results of the research are shown in Chapter 5, and Chapter 6 will discuss these results. Finally, in Chapter 7 we provide a conclusion of the study.
FIGURE 1 Theoretical Framework
CONTROL VARIABLE
BACKGROUND
Board Composition
Top management team characteristics and the effect on organizational outcomes are studied extensively. Two important theoretical developments are the result of this trend. The first development was March and Simon’s behavioral theory (March and Simon, 1958; Cyert and March, 1963). According to this theory, decision makers are subject to bounded rationality and must act in an environment with multiple, conflicting goals. Decision makers, hence, are unable to make economically rational decisions. This theory was extended by Hambrick and Mason’s (1984) upper echelon perspective; the dominant concept in board and corresponding organizational outcome studies nowadays and also the concept used in this study. The main idea supporting the upper echelon perspective is that individual characteristics influence preferences and attitudes of board members, and the dynamics of the board. Subsequently, manager’s strategic choice is affected (e.g. Smith et al., 1994; Finkelstein et al., 1996), such as the type of acquisition companies will pursue.
Age Gender Acquisition Type Nationality Actual Performance BACK GRO UN D CHA RACTERIS TICS EXP ERIE NCE VA RIABLES
Size of the Board
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Generally, the influence of board member characteristics on organizational outcomes is measured by calculating the diversity within a characteristic. Top management teams become more and more diverse (Jackson et al., 2003). In the literature, opposing views exist regarding the diversity in boards and organizational outcomes. On the one hand, researchers put emphasis on the disadvantages of heterogeneous groups by arguing that a diverse board decreases the use of accessible information (e.g. Van Knippenberg et al., 2004; Tajfel, 1982; Messick and Massie, 1989). Other researchers suggest that diversity is advantageous since a higher access to more information and knowledge gives greater capabilities to make the best decisions about acquisitions (e.g. Hambrick and Mason, 1984; Cox, 1994; McLeod et al., 1996). Results of the studies mentioned are mixed as well. This study will take averages instead of diversity of board characteristics. Averages are not taken into account in most prior studies about top management teams. By exploring the relation between the averages, we will investigate whether future studies about this topic should take into account certain averages of traits.
Acquisition Type
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HYPOTHESIS DEVELOPMENT
This study includes the investigation of four demographic characteristics of boards: age, gender, nationality, and education. Two experience-related characteristics of boards are examined: tenure, and board experience. These board member characteristics are in line with characteristics used in the articles of Hambrick and Mason (1984) and Carpenter, Geletkanycz, and Sanders (2004) who elaborate on Hambrick and Mason’s article. We examine the relatedness of the cross-border acquisition based on these board characteristics. Subsequently, the relation between acquisition type and post-acquisition performance will be investigated.
Acquisition Type
Age
Manager’s age influences the evaluation of acquisition options (Hitt and Tyler, 1991). As age increases, a manager will be less flexible, and hence rigidity and resistant to change will increase (e.g. Child, 1974; Chown, 1960). Board member’s age is also positively related to the search towards security (Carlson and Karlsson, 1970; Vroom and Pahl, 1971). Board members, hence, will be more risk oriented at younger ages and more risk averse when age increases. For these reasons, younger managers will be more capable to deal with the complexity and risk associated with cross-border acquisitions. Thus, we offer the following hypotheses:
H1:Boards of firms with younger managers will be more inclined to pursue explorative acquisitions than will boards of firms with older managers.
Gender
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members. Moreover, women are more likely than men to possess a “feeling” cognitive style, which emphasizes harmony (Hurst et al., 1989). Also, women are more likely than men to learn from others’ experiences (Ibarra, 1997; Gersick et al., 2000), creating opportunities to engage in more comprehensiveness, which in turn generates higher-quality decisions (Miller
et al., 1998). These arguments suggest that women are more than men capable of dealing with
the high complexity that is involved regarding acquisitions. Therefore, the higher risk concerned in unrelated versus related or partly related acquisitions will be a lower threshold for women than for men. We hypothesize:
H2: The greater the proportion of women on the board, the more a company will be inclined to pursue explorative acquisitions.
Nationality
The nationality of board members may be of importance in decision-making with regard to acquisitions as well, especially in cross-border acquisitions since foreigners tend to be more internationally oriented and may be more knowledgeable about the acquiring firm’s country than domestic individuals of a board. According to O’Reilly et al. (1998), creativity and implementation ability is increased as the number of race and ethnical – foreigners – increases. Therefore, foreigners will be more able to cope with risk and hence boards consisting of a high proportion of foreigners have less avoidance towards risky decisions in cross-border acquisitions. This point to the following hypothesis:
H3: The greater the proportion of foreigners on the board, the more a company will be inclined to pursue explorative acquisitions.
Educational Level
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higher-educated boards are less likely than lower-educated boards to avoid risks with regard to type of firms to target. These arguments suggest that:
H4: Boards of firms with higher levels of education will be more inclined to pursue explorative acquisitions than will board of firms with lower levels of education.
Company and Job experience
Acquisition decisions are almost inevitable complex, and thus create significant challenges for the board. Members having prior experience within the company will have more knowledge of the company itself and its processes (Finkelstein et al., 1996) and may know better what is good for the company and what is not. Having more experience in other boards is congruent to an increase in equipment to deal with the complex nature of the decision about acquiring companies, increasing the contribution in decision making and firm success (Carpenter and Westphal, 2001; Pfeffer, 2003). However, boards that have on average more experience within the company and with their job will create more commitment to the pursued strategies as well, decreasing their ability to change (Bantel and Jackson, 1989; Wiersema and Bantel, 1992). As Geletkanycz and Black (2001) mentioned, commitment to the status quo is related to non-risky decisions and hence more experienced boards (with regard to tenure and job experience) will be more inclined to pursue less risky strategies. Moreover, boards that have high experience within the company, as well as in the job itself, are more likely to think they have sufficient expertise and knowledge, which reduces exploration of novel, and more risky strategies (Katz, 1982). Therefore:
H5: Boards of firms with a lower average tenure will be more inclined to pursue explorative acquisitions than will boards of firms with a higher average tenure.
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Performance
Acquisition Type
Research on the field of acquisition type and their post-acquisition performance typically argue that relatedness of the acquisition, based on the industry, should enhance performance after an acquisition (e.g. Salter and Weinhold, 1979; Lubatkin, 1983; Datta, 1991). In addition to this, Shelton (1988) and Singh and Montgomery (1987) demonstrated that related acquisitions will create more shareholder value compared to the shareholder value created in unrelated acquisitions. Explanations for the positive relationship between relatedness and performance include market power (Eckbo, 1983) or economies of scale and scope (Porter, 1980; Salter and Weinhold, 1979; Lubatkin, 1983; Datta, 1991). We expect that this relation will hold for acquisitions over the border. We hypothesize:
H7: Relatedness of cross-border acquisitions will be positively related to the acquirer’s post-acquisition performance.
METHOD
Sample and Data Collection
10 Dependent Variables
For measuring the acquisition type, we determine whether the target company is similar to the acquirer company based on the Standard Industrial Classification (SIC) code, which is a system for classifying industries by a four-digit code. Using SIC codes for distinguishing unrelated and related businesses is common in the strategic management field (e.g. Palepu, 1985; Bergh, 1997). We create an indicator of relatedness if either companies share the same primary (1) four-digit SIC code or (2) two-digit SIC code only. The first two digits of the code describe the major industry to which a business belongs. The third and fourth digit represents the sub-classification of the business group and specialization, respectively. We then have three values for the relatedness of the acquisition. A zero indicates that the acquirer’s primary four-digit or two-digit SIC code does not match with the SIC code of the target firm and is defined as an unrelated, or explorative acquisition. A one means that the acquisition is partly related (neither explorative, nor exploitative), and is the value for an acquisition if the acquirer firm’s primary two-digit SIC code matches with the SIC code of the target firm. Finally, a two indicates that the SIC codes of both the acquirer firm and the target firm are equal to each other and signifies that the acquisition is related, or exploitative.
We calculate actual performance by making use of an event study. The ‘event’ – in this case a cross-border acquisition – can be estimated by calculating the differences between the actual and the expected performance. Expected performance is calculated as a forecast of how the firm should behave, in the absence of the event, given how it has behaved in the past. For this forecast, S&P 500 data of twenty-five days prior to the event are used. The actual performance is subtracted from the expected performance to estimate the ‘abnormal’ returns. These abnormal returns are summed up to calculate the Cumulative Abnormal Return (CAR). The five-day CAR is calculated as in Faccio et al. (2006) by adding the market-adjusted return of each acquirer for days t-2 to t+2, where t is the acquisition announcement day. CARs are estimated before the announcement to include pre-bid run-ups (Schwert, 1996), and afterwards to observe the effect of the event. If a merger was announced on a non-trading day, we code the preceding trading day as the official announcement day. All CARs are winsorized between 1 and 99% to remove outliers.
Independent Variables
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firm at the senior-most level (Hambrick et al., 1996). We examined six types of board characteristics.
The first independent variable average age will be measured as the total age of board members in years divided by the total number of board members. We expect that the positive effect of age on the tension towards pursuing explorative acquisitions instead of exploitative acquisitions will be less positive as age increases. To correct for the stronger effects at lower ages and the weaker effects at higher ages, the natural logarithm of average age is used. For
gender, the number of men in the board will be divided by the total number of board
members. The values range from 0 to 1, where higher values indicate a higher proportion of men in the board. Nationality is seen as a binominal variable: whether an executive’s nationality is the same as the firm’s country or not. Nationality will be measured as the number of foreigners in a board divided by the total number of board members. Values vary from 0 to 1, where higher values indicate a higher proportion of foreigners in the board. For
average education, we will divide the total number of academic and professional
accreditations received by the board by the number of board members. The average tenure is the average time members are in company’s boards. Average tenure will be measured as the length of time, stated in years, that the board members have been in their current role divided by the number of board members. Finally, we will measure average board experience as the total number of boards (quoted and private companies) on which the board has served to date, including current board positions, divided by the total number of board members. We use the natural logarithm to correct for the non-normally slope between average board experience and the type of acquisition.
Control Variable
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RESULTS
Table 1 presents the means, standard deviations, and correlations among the variables. The size of each firm’s board in this study varied from 4 to 34 individuals, with a mean of 11.23. Average ages of all members in a board ranged from 37 to 71 years, and their average tenure ranged from 0 to 15 years. Average lists of academic and professional accreditations received per member in a board varied from 0 to 4 accreditations, with a mean of 1.74 accreditations per board member. On average, board members have been on 8.71 boards, taken also into account their current position(s). Overall, experience in boards ranged from 2 to 39 different boards. The matrix in Table 1 shows that there are significant correlations between some trait variables. We therefore use the Belsly, Kuh and Welsch (1980) test to check whether individual observations exert unusual leverage on the coefficient estimates, discarding those that do so. Result is that the presence of any multicollinearity was not sufficient to warrant concern about our significance tests.
There is evidence to believe that the dependent variable, type of acquisition, consists of an ordered scale, since relatedness of the acquisition increases if the value changes from 0 to 1 and from 1 to 2. Therefore, the hypotheses about type of cross-border acquisitions were tested using ordered logistic regression. For this type of regression, it is assumed that the independent variable and the logits are the same for all logits. Allowing the coefficients to vary, estimate them, and then test whether they are all equal can check this assumption. Result is a Chi-Square (k) of 17.624 (7), which is significant (p < 0.014). This indicates that the model is inappropriate to interpret. To test whether multinomial regression is more appropriate to use in our analysis, we first tested whether the independence of irrelevant alternatives assumption was hold. The assumption means that the relative odds between two alternatives are the same, regardless of what other alternatives are available (Sen, 1970). In this study, the assumption was not violated and thus multinomial logistic regression will be the method of analysis for testing the hypotheses about the risk acquirers will take in cross-border acquisitions, even though we will lose some information as the multinomial model does not take the order of the relatedness into account. Results of this type of regression are presented in Table 2.
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TABLE 1
Descriptive Statistics and Correlation Matrixa
Variables Means s.d. 1 2 3 4 5 6 7 8
1. Relatedness 1.07 0.93
2. Performance 0.01 0.07 0.070*
3. Board Members (natural logarithm) 2.32 0.44 -0.080** -0.038
4. Mean Age (natural logarithm) 4.03 0.08 -0.079** -0.032 0.043
5. Gender (proportion men) 0.93 0.11 0.012 0.017 0.025 -0.048
6. Nationality (proportion foreigners) 0.20 0.22 0.012 0.017 0.085** 0.237*** 0.011
7. Mean Educational Level 1.74 0.61 -0.061* 0.014 -0.144*** 0.217*** -0.079** 0.304***
8. Mean Tenure 4.46 2.30 -0.044 -0.025 -0.016 0.336*** -0.077* 0.048 0.021
9. Mean Experience in Boards (natural logarithm) 2.26 0.46 -0.004 -0.019 -0.061* 0.060* -0.130*** 0.212*** 0.213*** -0.059
a n = 1,040
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TABLE 2
Results of Multinomial Logistic Regression for Type of Cross-Border Acquisitiona
For related cross-border acquisitions, compared with unrelated cross-border acquisitions, significant results are found for age (p = 0.083). The odd ratio (OR = 0.213), however, indicates that the signs are different from what we expected. This means that the higher the age, the more likely the board is to pursue unrelated cross-border acquisitions instead of related cross-border acquisitions. Gender is not significant for related acquisitions as compared to unrelated acquisitions. However, for partly related acquisitions, relative to unrelated acquisitions, gender is significant. We used model 2, in which “partly related acquisitions” is the reference category, to explore the relation between gender and the relatedness of the acquisition. In the second model of Table 2, we notice that gender is significant for both categories, related to the category “partly related acquisition” (punrelated = 0.047; prelated = 0.044). In the model both odd ratios are greater than one. Therefore, we can conclude that gender is related to acquisition type in a curvilinear (U-shaped) manner. This means that the higher the proportion of men in a board, the more the board is likely to engage in unrelated or related cross-border acquisitions. Boards consisting of a higher proportion of women are more likely to acquire target firms that are partly related to the acquirer’s Acquisition Type Model 11 [OR (95% CI)]3 Acquisition Type Model 22 [OR (95% CI)]3
Partly related Average Age (natural logarithm) 1.643 (0.125 – 21.654) Unrelated 0.609 (0.046 – 8.020)
Gender4 0.985* (0.970–1.000) 1.015* (1.000–1.031)
Nationality5 0.940 (0.375–2.357) 1.064 (0.424–2.669)
Average Education 0.938 (0.670–1.312) 1.067 (0.762–1.492)
Average Tenure 0.944 (0.864–1.032) 1.059 (0.969–1.158)
Experience in boards (natural logarithm) 0.955 (0.618–1.476) 1.047 (0.677–1.618)
Board Members (natural logarithm) 1.550* (1.007–2.385) 0.645* (0.419–0.993)
Related Average Age (natural logarithm) 0.213† (0.037–1.222) Related 0.129 (0.010–1.595)
Gender4 1.000 (0.987–1.013) 1.016* (1.000–1.031)
Nationality5 1.797† (0.952–3.392) 1.912 (0.769–4.752)
Average Education 0.752* (0.594–0.952) 0.802 (0.574–1.121)
Average Tenure 0.974 (0.917–1.034) 1.032 (0.945–1.127)
Experience in boards (natural logarithm) 0.977 (0.724–1.318) 1.023 (0.667–1.568)
Board Members (natural logarithm) 0.627** (0.460–0.855) 0.405*** (0.263–0.622)
Cox & Snell R-Square Nagelkerke R-Square McFadden R-Square LR ~ χ2 (k) 0.034 0.040 0.018 38.124 (14)*** a n = 1,040
1 Reference category: unrelated.
2 Reference category: partly related.
3 CI = confidence interval; OR = odds ratio.
4 Reference category: women.
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company, partly showing support for H2. For nationality, no significant effect for partly related compared to unrelated acquisitions was found. Table 2 shows a significant positive result for related acquisitions, compared with unrelated acquisitions (p = 0.071). This supports H3 in that there is an effect of nationality on the type of cross-border acquisition. However, the signs are the opposite of what we hypothesized. From the results in Table 2, we can conclude that the higher the proportion of foreigners in a board, the more the acquirer’s company will pursue related cross-border acquisitions instead of unrelated cross-border acquisitions. Average education is significant for related acquisitions, compared to unrelated acquisitions (p = 018). This effect is not significant for partly related acquisitions as compared to unrelated acquisitions. The odd ratio of average education for related acquisitions as compared to unrelated acquisitions is below one, showing that higher-education within a board will ensure that the board will be more inclined to pursue unrelated acquisitions than related acquisitions. Lower-educated boards are more likely to acquirer target firms closely related to the acquirer’s firm. This shows support for hypothesis H4. No significant results were found for average tenure and experience in boards, and the type of acquisition a firm is likely to pursue. Therefore, no support is found for H5 and H6. The control variable “number of board members” influences both partly related and related acquisitions as compared to unrelated acquisitions (ppartly related = 0.046; prelated = 0.003). Given that the odds in the second model are both below one, the number of board members is related to type of cross-border acquisition in a curvilinear (inverted U-shaped) manner. Smaller boards will be more inclined to engage in related, but also unrelated cross-border acquisitions. Boards that consist of higher number of board members are more likely to engage in cross-border acquisitions containing target firms partly related to the company.
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partly related, and related cross-border acquisitions with respect to their performance. Higher degrees of relatedness positively affect the mean for the CARs, showing support for H7.
DISCUSSION
Performance
We start our discussion with the type of acquisition and the effect on the performance, which showed significant results. This may indicate that pursuing related acquisitions is preferred over the other two types for cross-border acquisitions. Two notes have to be made. In the first place, from the parametric model in Table 3, we see that the R squared is very low (R square < 0.006). Although this model is not used in our analysis, it is an indication of how much the acquisition types explain the performance of a cross-border acquisition. There are (many) other factors influencing the performance of a cross-border acquisition.
TABLE 3
Means for Type of Acquisition and Performancea
Model 11 Model 22 Shapiro-Wilk (k) Unrelated 0.888*** (400) Partly Related 0.945*** (143) Related 0.948*** (479) Levene (k) 0.669 (1021) R-Square 0.0055 ANOVA ~ F (k) 2.818 (1021) † χ2 (k) 5.103 (2) † Mean Unrelated 0,0045 Partly Related 0,0075 Related 0,0129 a n = 1,040. 1 One-way ANOVA 2 Kruskal-Wallis H-test † p < .1; * p < .05; ** p < .01; *** p < .001.
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∑
Where is the diversity measure, varying between 0 and 1. A high HHI indicates a high degree of heterogeneity and vice versa. is the percentage of the same rounded CARs in each of the categories of . The performance volatility is measured based on the CAR measurements, rounded at one and two decimals. We used two measurements to increase validity in the results.
The results are presented in Figure 2. From this, we see surprising results. Unrelated cross-border acquisitions have a higher volatility in performance than partly related acquisitions, as what we expected. However, related cross-border acquisitions have a higher diversity of performance than the other two acquisition types for both Herfindahl measurements. Also a 90% winsorisation of the CARs would not change this effect. This result is interesting since related acquisitions were perceived as less risky, and hence returns were expected to be smoother than partly or unrelated acquisitions. As the result shows, we should call into question the taken for granted assumption that risk in cross-border acquisitions decreases as the level of relatedness increases. A reason for this unusual result is that boards may try to reduce the risk involved in the acquisition by choosing for related instead of unrelated target firms. Apparently, other factors affecting the risk involved in an acquisition exist and better explain the total risk concerned with cross-border acquisitions.
Acquisition Type
The results of this study (partly) show a relationship between four of the six variables studied for the type of cross-border acquisition. Firms that are most likely to pursue explorative cross-border acquisitions, as opposed to exploitative acquisitions, are most likely to have relatively large boards consisting of relatively old individuals characterized by relative high average educational levels and a high proportion of domestic managers.
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FIGURE 2
Herfindahl-Hirschman Index for Performance (1 digit and 2 digits)
An explanation for this inverse relation may be that as risk involved in the acquisition is higher, younger managers and foreigners will sooner than older domestic managers choose for acquisitions that are closely related to their company. The same applies for the demographic variables gender and education. Both effects showed (partly) significant results, partly in the direction as we hypothesized. However, again we were reasoning from the risk men or women, and low- or high-educated individuals would take in decision-making regarding acquisitions. More research is needed to explain the relations as presented in Table 2. The average tenure within a board apparently did not influence the relatedness of the acquisitions. The same non-significant results hold for the experience of board members in different boards. Also, many characteristics were only partly significant. This could mean any of the following: (1) Individuals may have undergone an extensive process to finally become a board member of a company. During that process, the individuals may be shaped in such a way that the (non-significant) characteristics presented in this study do not influence decision-making regarding the type of acquisition anymore. The individuals in a board have become more homogeneous than their demographic and experience-related profile suggest. (2) Studying only averages of characteristics in boards ignores relevant information in two ways: (a) Measuring averages in boards, as is the measurement for most of the variables in this study, neglect the interaction within these variables. That is why many studies about boards particularly put their emphasis on diversity in boards (e.g., Murray, 1989; Hambrick, Cho, and Chen, 1996; Boerner et al., 2011). Individuals are more complex and behave differently
0,508 0,504 0,546 0,943 0,940 0,948 0,934 0,936 0,938 0,940 0,942 0,944 0,946 0,948 0,950 0,450 0,475 0,500 0,525 0,550 0,575 0,600 0,625 0,650
Unrelated Partly Related Related
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for particular combinations of demographic and experience-related characteristics. (b) Studying only the influence of demographic and experience-related variables in boards on the type of the cross-border acquisition ignores other important factors, such as the degree of influence the CEO has, or the financial situation of the company.
We did also test the direct relation between board characteristics and the performance after a cross-border acquisition. However, the model as a whole was insignificant, even when the (most) insignificant variables were removed. This once again shows the complex nature of cross-border acquisitions. Furthermore, this shows the low importance of investigating the type of acquisition. Apparently other factors influencing post-performance of a cross-border acquisition are more important, which is in line with the unexpected results with regard to the risk involved in the type of acquisition: other factors that determine the total risk appears to be more important than the risk involved in the type of acquisition. As we mentioned, companies may try to reduce the risk involved in the acquisition by choosing for related instead of unrelated target firms.
CONCLUSION
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