Acquirer’s Absorptive Capacity and Firm Performance: The Perspectives of Strategic Behavior and Knowledge Assets

Abstract

In this study, we underline the importance of the relationship between absorptive capacity and an acquiring firm’s post-merger performance following the acquisition of a target firm’s knowledge through cross-border mergers and acquisitions (CBMAs). We analyzed CBMAs between developed countries to highlight how realized absorptive capacity plays a crucial part in a firm’s achievement of CBMA sustainability. Using United States CBMA transactions with other developed countries during 2000–2014, our findings suggest that an acquiring firm’s greater absorptive capacity leads to better post-merger performance. More interestingly, compared to for domestic M&As, the direct effect between absorptive capacity and post-merger performance was found to be more positively related in CBMA transactions, even when we applied propensity-score matching (PSM) and Heckman’s selection model to the same estimation. In addition, we introduce four moderating variables that could either intensify or lessen a firm’s effort to seek external knowledge for organizational growth. In terms of an acquiring firm’s strategic behavior, we find that paying in cash and past CBMA experiences positively influence a firm’s post-merger performance. For a target firm’s knowledge assets, we show that when a target firm possesses more strategic assets, they reinforce the acquiring firm’s post-merger performance, and when the target firm is in a high-tech industry, the acquiring firm’s post-merger performance is weakened. Our study contributes to the CBMA literature by incorporating the concept of a knowledge-based view and by empirically testing the different effects of absorptive capacity between domestic M&A and CBMA and how both strategic behavior and a target firm’s knowledge assets affect a firm’s post-merger performance related to CBMA sustainability.

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