When the target may know better

Effects of experience and information asymmetries on value from mergers and acquisitions

I.R.P. Cuypers, Y.K. Cuypers, Xavier Martin

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Research Summary: Extending research on the effect of experience on acquisition outcomes, we examine how the differential in previous M&A experience between the target and the acquirer affects the value they respectively obtain when the acquirer takes over the target. Drawing on literature about organizational learning, negotiation and information economics, we theorize that the party with greater experience will be able to obtain more value. Furthermore, we theorize that the effect of differential M&A experience on value obtained is contingent on the level of information asymmetry the acquirer faces with respect to the target, specifically as a function of the target's product-market scope and whether the deal is friendly. We test and find support for these predictions in a sample of 1,241 M&As over a 30-year period. Managerial Summary: Corporate strategy is about a firm's scope and development decisions and outcomes, but corporate strategizing is incomplete unless managers anticipate the moves of other economic actors. We demonstrate the importance of these points when it comes to learning to make acquisitions. Using an innovative research design and theory that enables comparison between acquirer and target gains, we show that whatever their firm's acquisition history and capabilities, acquisitive managers should mind the negotiation and other pitfalls that arise when target firms possess ample acquisition experience of their own. We also demonstrate that the effect of experience advantage, whereby the more experienced party benefits, depends on the target firm's scope and whether the deal is friendly – two dimensions that acquirers can and should take into account.
Original languageEnglish
Pages (from-to)609–625
Number of pages16
JournalStrategic Management Journal
Volume38
Issue number3
DOIs
Publication statusPublished - 1 Mar 2017

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Information asymmetry
Mergers and acquisitions
Managers
Information economics
Prediction
Research design
Asymmetry of information
Economics
Product market
Organizational learning
Corporate strategy
Strategizing

Keywords

  • M&A performance
  • experience advantage
  • acquisition target
  • bargaining
  • product-market scope

Cite this

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title = "When the target may know better: Effects of experience and information asymmetries on value from mergers and acquisitions",
abstract = "Research Summary: Extending research on the effect of experience on acquisition outcomes, we examine how the differential in previous M&A experience between the target and the acquirer affects the value they respectively obtain when the acquirer takes over the target. Drawing on literature about organizational learning, negotiation and information economics, we theorize that the party with greater experience will be able to obtain more value. Furthermore, we theorize that the effect of differential M&A experience on value obtained is contingent on the level of information asymmetry the acquirer faces with respect to the target, specifically as a function of the target's product-market scope and whether the deal is friendly. We test and find support for these predictions in a sample of 1,241 M&As over a 30-year period. Managerial Summary: Corporate strategy is about a firm's scope and development decisions and outcomes, but corporate strategizing is incomplete unless managers anticipate the moves of other economic actors. We demonstrate the importance of these points when it comes to learning to make acquisitions. Using an innovative research design and theory that enables comparison between acquirer and target gains, we show that whatever their firm's acquisition history and capabilities, acquisitive managers should mind the negotiation and other pitfalls that arise when target firms possess ample acquisition experience of their own. We also demonstrate that the effect of experience advantage, whereby the more experienced party benefits, depends on the target firm's scope and whether the deal is friendly – two dimensions that acquirers can and should take into account.",
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When the target may know better : Effects of experience and information asymmetries on value from mergers and acquisitions. / Cuypers, I.R.P.; Cuypers, Y.K.; Martin, Xavier.

In: Strategic Management Journal, Vol. 38, No. 3, 01.03.2017, p. 609–625.

Research output: Contribution to journalArticleScientificpeer-review

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AB - Research Summary: Extending research on the effect of experience on acquisition outcomes, we examine how the differential in previous M&A experience between the target and the acquirer affects the value they respectively obtain when the acquirer takes over the target. Drawing on literature about organizational learning, negotiation and information economics, we theorize that the party with greater experience will be able to obtain more value. Furthermore, we theorize that the effect of differential M&A experience on value obtained is contingent on the level of information asymmetry the acquirer faces with respect to the target, specifically as a function of the target's product-market scope and whether the deal is friendly. We test and find support for these predictions in a sample of 1,241 M&As over a 30-year period. Managerial Summary: Corporate strategy is about a firm's scope and development decisions and outcomes, but corporate strategizing is incomplete unless managers anticipate the moves of other economic actors. We demonstrate the importance of these points when it comes to learning to make acquisitions. Using an innovative research design and theory that enables comparison between acquirer and target gains, we show that whatever their firm's acquisition history and capabilities, acquisitive managers should mind the negotiation and other pitfalls that arise when target firms possess ample acquisition experience of their own. We also demonstrate that the effect of experience advantage, whereby the more experienced party benefits, depends on the target firm's scope and whether the deal is friendly – two dimensions that acquirers can and should take into account.

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