Session 316

Acquisitions and Divestures: Antecedents and Consequences

Track F

Date: Monday, September 22, 2014

 

Time: 08:00 – 09:15

Common Ground

Room: Luxemburgo


Facilitator:

  • Tomi Laamanen, University of St. Gallen

Title: Analyst Pressure and Corporate Down-scoping: A Balanced-power Approach

Authors

  • Yu Zhang, China Europe International Business School
  • Jun Xia, University of Texas at Dallas
  • Yan Gong, CEIBS

Abstract: We theorize down-scoping as a strategic change shaped by three types of powerful actors: securities analysts as assessors, corporate executives as makers, and directors and institutional investors as monitors of corporate strategies. We argue that earnings pressures from securities analysts can spur managers to reduce the scope of corporate business. We further argue that the impact of earnings pressures on firms’ down-scoping can be modified by the decision makers and monitors because they may compete to control the strategic direction of the firm. Using a sample of S&P 1,500 companies from 1998 to 2009, we found that CEO duality, outside director ownership, and long-term oriented mutual fund dampen the effects of earnings pressures. In contrast, short-term oriented mutual fund amplifies the impact of earnings pressures.

Title: Credit Rating Agencies and their Influence on Acquisitions and Sell-Offs

Authors

  • Christian Gudd, University of Erlangen-Nuremberg
  • Jan Mammen, University of Erlangen-Nuremberg

Abstract: While former studies have shown that ratings have an influence on the capital structure of firms, little is known about their influence on firm’s corporate strategy. Based on resource dependence theory, we argue that firms and their investment decisions are dependent on rating agencies. We test our hypothesis with a panel dataset of S&P 500 companies in the period from 1990 to 2012. The results show that better ratings increase (decrease) the likelihood of acquisitions (sell-offs). In addition, rating downgrades force firms to reduce acquisitions and to increase sell-offs. This is the first study showing a relation between ratings and investment decisions by applying resource dependence theory. Furthermore, it contributes to research on acquisitions and sell-offs by establishing ratings as an antecedent of these decisions.

Title: Expectations for Post-Divestiture Performance: Distinguishing Signals from Noise

Authors

  • Donald Bergh, University of Denver
  • Kitty Chiu, INSEAD

Abstract: Drawing from signaling theory, we consider how investors valuate organizational attributes of divesting firms and whether those valuations are also associated with post-divestiture performance. Findings from a sample of 205 divestitures show that investors initially valued only one strategic attribute (the divesting firm’s diversification strategy) that was subsequently related to post-divestiture performance. They did not valuate several attributes (strategic-related) that were linked to post-divestiture performance and instead appeared to focused on some (organizational and transactional-specific) that had no such relationships. The findings support a new hypothesis of how divestitures create value by suggesting that some organizational attributes at the time of a divestiture may give insight into post-divestiture performance, and that not all are equally valid.

Title: Performance of Different Types of Serial Acquisition Strategies

Authors

  • Xena Welch Guerra, University of St. Gallen
  • Tomi Laamanen, University of St. Gallen

Abstract: While the literature on serial acquisitions and the temporal perspective of acquisition strategies has progressed significantly in recent years, the literature has been rather silent on the motives of the acquisitions. In order to contribute to this gap, we examined the acquisitions of the 40 most active Swiss acquirers, coded the motives of each of their 846 deals, and categorized them as either product portfolio or geographic market extensions. Based on our analysis, we find that acquisition strategies aimed at geographic expansion outperform product expansion focused strategies. This effect is, however, moderated in an important manner by the rhythm of the acquisition sequence. To our knowledge, our paper is the first to incorporate the motives of individual acquisitions into the study of acquisition sequences.

Title: The Impact of Mergers on Quality Provision: Evidence from the Airline Industry

Authors

  • Jeffrey Prince, Indiana University
  • Daniel H. Simon, Indiana University

Abstract: We examine how mergers affect quality provision by analyzing five U.S. airline mergers, focusing on on-time performance (OTP). We find mild evidence that merging carriers’ OTP worsens in the short run. However, in the long run, their OTP substantially improves. Subsequent analyses indicate that efficiency gains, not reduced load factor or passenger volume, underlie our long-run result. Further, the short-run decline in OTP, if any, is consistent with both short-term post-merger integration challenges as well as market power effects. These findings suggest that in this context, concerns about mergers reducing quality may not be justified.

Title: Towards an Understanding of the Parent - Spun-Off Relationship: A Network Perspective

Authors

  • Federica Brunetta, LUISS Guido Carli University
  • Enzo Peruffo, LUISS Guido Carli University

Abstract: Spin-offs create stand-alone units that hold a strong affiliation with parent firms due to the concurrence of the ownership structure. Literature focuses on firms’ spin-off performance, but few contributions adopt a process perspective to investigate the value creation of spin-off transactions. We argue that spin-offs do not constitute firm failures, as parents have clear channels to appropriate values of network structure from their spun-out firms. We underline structures, relations, and outcomes of inter-firm collaboration to observe the relationship among parent and spun-off unit. We develop four research propositions to shed new light on the mechanisms that drive the post spin-off events and the firms’ subsequent corporate development activities, namely on innovation. We suggest viewing network structure as an additional strategic lever used by parent firms.

All Sessions in Track F...

Sun: 08:00 – 09:15
Session 400: Teaching Corporate Strategy: Insights and Opportunities
Sun: 11:15 – 12:30
Session 401: Research Synergies in Corporate Strategy and Entrepreneurship
Sun: 15:45 – 17:00
Session 398: Corporate Strategy and Corporate Finance: Continuing the Research Conversation
Sun: 17:15 – 18:30
Session 602: Corporate Strategy IG Business Meeting
Mon: 08:00 – 09:15
Session 308: How do firms grow? Canvasing Different Perspectives
Session 316: Acquisitions and Divestures: Antecedents and Consequences
Mon: 11:00 – 12:15
Session 319: International Corporate Strategy
Mon: 14:45 – 16:00
Session 437: Corporate Structure, Resource allocation, and Portfolio planning
Mon: 16:30 – 17:45
Session 325: Product Scope Strategy in Different Empirical Contexts
Tue: 08:00 – 09:15
Session 327: Market Response to M&A
Tue: 11:00 – 12:15
Session 328: New Angles of Examining Acquisition Strategies
Tue: 15:30 – 16:45
Session 399: The Role of Industry/Environmental Conditions in Corporate Strategy
Tue: 17:15 – 18:30
Session 318: The Boundary of the Firm


Strategic Management Society

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