Acquisitions often do not reach completion when buyers' initial evaluations change during post-announcement due diligence investigations, but research offers only limited explanations for when such ...deal-cancelling new information will be most common. Drawing from the spatial geography and acquisition strategy literatures, we argue that successful completion of acquisitions can be partially explained by their spatial characteristics. We start by predicting that geographic distance has a particularly strong impact in reducing the likelihood of completing related acquisitions; we then identify contingencies based on multiple forms of direct, contextual, and vicarious experience that can help acquirers overcome the constraints of distance. We test the arguments with a sample of 1,603 domestic acquisitions announced by 724 U.S. chemical manufacturing firms between 1980 and 2004.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK
Research summary
Focusing on the incubation stage of a potential new industry, this article addresses a gap at the intersection of the external sourcing and market entry literatures by examining ...pre‐entry external sourcing of new resources. Besides drawing on their legacy resources, pre‐entrants during industry incubation commonly use alliances and acquisitions to obtain technical capabilities and complementary assets, thereby creating a portfolio of sourcing modes that collectively shapes the firms' paths to potential market entry. We identify a key pattern at the intersection of type of sourcing mode and type of resource: pre‐entrants to the incubation stage are more likely to use alliances to source technical capabilities, while using acquisitions to source specialized complementary assets. Our empirical context is the agricultural biotechnology industry.
Managerial summary
Firms typically seek new resources when they begin exploring potential industries, before any products have reached the market, yet the needed investments face substantial uncertainties. This article highlights a pattern in how firms use alliances and acquisitions for technical capabilities and complementary resources during the incubation stage of the agricultural biotechnology industry. We focus on two key features of the external sourcing activity, differing based on the type of resource: developing new core technologies, which often starts early, tends to leverage external alliance partners; by contrast, establishing complementary assets tends to start later through acquisitions. The logic underlying these patterns can help managers make effective decisions about their external sourcing strategies during the incubation stage of a new industry.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Research Summary: Research exploring investor reactions to sustainability has substantial empirical limitations, which we address with a large-scale longitudinal financial event study of the first ...global sustainability index, DJSI World. We examine investor reactions to firms from 27 countries over 17 years that are added, deleted, or continue on the index. We find that once relevant controls and comparisons to observationally equivalent firms beyond the index are included, DJSI events have only limited significance and/or materiality. Nonetheless, investors' valuation of sustainability around the world has evolved over time, involving diminishing reactions to U.S. firms and increasing benefits, particularly of continuation on the index, over time. The study highlights the importance of careful analysis and longitudinal global samples in making inferences about the financial effects of social performance. Managerial Summary: The debate about how investors perceive corporate social responsibility (CSR) predates Milton Friedman's famous statement that the only social responsibility of business is to increase profits. Although extensive research has studied whether sustainability contributes to financial performance, we have yet to understand whether investors believe it pays off. This financial event study of reactions to the addition, continuation, and deletion from DJSI World, the first global sustainability index, shows that investors care little about DJSI announcements. Nonetheless, there is some evidence that global assessments of sustainability are converging and that investors may increasingly be valuing continuation on the DJSI, suggesting that firms may gain at least limited benefits from reliable sustainability activities.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
This paper draws from performance feedback theory and the resource-based view of the firm to study divestiture activity. We argue that the extent and nature of resource reconfiguration through ...divestiture may be affected by both high and low extremes of performance relative to a firm’s historical aspirations. Based on analysis of divestiture counts, we find that firms with increasing performance, especially when they also have high levels of performance, appear to use divestitures in a “complementary Penrose effect” that frees resources firms can use for future growth, with the greatest impact on the number of partial rather than full divestitures. With more limited data on divestiture value, we find relationships of both increasing and decreasing performance with divestiture activity. The study uses longitudinal segment-level data for firms operating in the global pharmaceutical industry between 1999 and 2009.
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BFBNIB, CEKLJ, IZUM, KILJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK
Evolutionary theory of business activity studies how firms are selected out of environments in which they do not fit, but most existing work underemphasizes the distinction between acquisition and ...dissolution as selection processes. We address this gap with a multilevel analysis that investigates how managerial and functional organizational capabilities affect whether struggling firms exit by acquisition or dissolution. We demonstrate that managerial and functional capabilities have heterogeneous effects on selection processes, with managerial capabilities having particularly strong influence on acquisition exits by struggling firms. The work provides a bridge between adaptation and selection views on organizational change; exit by dissolution represents selection of both firms and capabilities, while exit by acquisition represents firm selection but capability adaptation.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Research Summary: Firms with resources that make them attractive allies are also desirable partners for competitors so that competition among partners is embedded in alliance portfolios. We develop a ...framework in which competition within a portfolio creates benefits for a focal firm but threatens partners, increasing the hazard of alliance termination. We then propose four mechanisms for managing the threat of competition to partners reflecting aspects of portfolio configuration: alliance governance, social cohesion, social structure of competition, and partner similarity. We test our framework using a sample of 204 biopharmaceutical firms with alliance portfolios comprising 1,621 alliances between 1990 and 2000. The study addresses the interplay of competition and cooperation in alliance portfolios, and more generally, key aspects of value chain integration strategy.
Managerial Summary: Alliance portfolios comprise a focal firm's set of direct partners, some of which compete with each other because of overlapping resources, capabilities, and strategies. The threat of actual or perceived competition from other partners may cause some firms to terminate their alliance with the focal firm. We develop a framework comprising four mechanisms related to alliance portfolios—alliance governance, social cohesion, social structure of competition, and partner similarity—that allows focal firms to attenuate the hazard of termination of their alliances. We find support for our framework in a study of 204 biopharmaceutical firms with alliance portfolios comprising 1,621 alliances between 1990 and 2000. We improve understanding of how firms can manage competition and cooperation within their alliance portfolios.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK
In emerging-market countries, commercial institutions do not always develop sufficiently quickly or effectively to support ambitious entrepreneurs. How might intermediaries remedy these problems? We ...address this question by drawing on institutional literatures to develop the concept of "open system intermediaries." Our research design involves examining business incubators in emerging markets as a form of open system intermediary. Empirically, we examine the relative emphasis that business incubators in emerging-market countries place on developing markets versus developing specific businesses. The study further examines how private, government, academic, and non-governmental organization sponsorship of incubators influences the mix of services that incubators provide. In sum, this work contributes to our understanding of how, why, and when intermediaries emerge to address institutional failures.
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BFBNIB, IZUM, KILJ, NMLJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK
Research summary: Studies of how divestitures affect firm performance offer mixed results. This paper unpacks relationships between divestitures and subsequent performance, focusing first on the ...moderating role of prior performance and then on mechanisms through which divestitures by higher‐ and lower‐performing firms affect performance. The study suggests that divestitures can exacerbate weakness and reinforce strength: divestitures by lower performers improve profits but inhibit sales growth and tend to speed the firms’ exits as independent actors; by contrast, higher‐performing divesters invest in support of existing assets and gain new growth, while avoiding becoming acquisition targets. Most generally, divestitures help reduce constraints to changing a firm's resource base, which we refer to as a complementary Penrose effect.
Managerial summary: Divestitures help both struggling firms and high performers free financial and managerial resources that they can reinvest in more productive uses. In doing so, divestitures reinforce the strength of high performers but may exacerbate weaknesses of struggling firms. Divestitures by lower performers improve their profits but inhibit their sales growth and increase the chances that the firms will be acquired. By contrast, higher‐performing divesters gain new growth by investing in support of existing and recently acquired assets and, by doing so, are less likely to become targets of acquirers who seek their productive assets. Thus, divestiture is part of a downward cycle for struggling firms but supports a virtuous cycle for superior firms.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
The embeddedness of interfirm relationships in a social structure can engender order in new tie formation, but competitive incentives may undermine the order that firms seek to achieve and lead to ...tie dissolution. We examine how relational embeddedness (history of interactions), positional embeddedness (network centrality), and structural embeddedness (common partners) influence tie stability, focusing on unplanned joint venture dissolution. Prior work suggests that relational embeddedness facilitates alliance stability. This study shows that positional embeddedness does not promote stability, but structural embeddedness does help sustain alliances, particularly when partners have strong incentives to pursue self-interest at the expense of joint benefits.
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BFBNIB, IZUM, KILJ, NMLJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK
Recent research shows that preexisting network structure constrains the formation of new interorganizational alliances. Firms that are poorly embedded in a network structure are less likely than ...richly embedded firms to form alliances, because they lack informational and reputational benefits. This study examines the types of ties that poorly embedded firms can form to overcome the constraints that their structural positions impose, in turn helping to explain how firms' actions can transform existing network structures. We argue that poorly embedded firms are more likely to participate in ties characterized by social asymmetry than in ties characterized by structural homophily. We analyze the terms of trade that socially asymmetric partners negotiate for alliance governance and discuss how such alliances influence network dynamics. To test our arguments, we use longitudinal data on the alliance activities of 97 global chemical firms from 1979 to 1991.
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