Understanding Acquisition Performance: The Role of Transfer Effects

Abstract

Drawing on work from transfer theory at the individual unit of analysis, this study examines positive and negative transfer effects in organization acquisitions. Data from 96 organizations reveal that, consistent with theories on positive transfer of industry knowledge, similar acquisitions are positively related to acquisition performance. In addition, consistent with theory on negative transfer of past acquisition knowledge, second acquisitions underperform first acquisitions, particularly when first and second targets are from different industries. In combination, these findings suggest that the routines and practices established in prior situations transfer to new situations, and that the effect of such transfer depends on the similarity of industrial environments.

Lost in transaction? The transfer effect of strategic consistency

“…Yelle 1979). However, diverse empirical research studies have shown that the principle of learning-curve theory cannot be transferred one-to-one to complex strategic management settings (Ellis et al 2011;Finkelstein and Haleblian 2002;Haleblian and Finkelstein 1999;Hayward 2002;Zollo 2009; see Barkema and Schijven 2008b for an overview of research on organizational learning in acquisition settings). The results of prior empirical studies show evidence that in strategic management settings, as against manufacturing settings, learning relates to the quality rather than to the quantity of experience (Hayward 2002).…”

“…Prior empirical studies analyzing the performance effects of serial acquisitions generally pursue two variant key topics: the effect of time or more specifically acquisition patterns (Klarner and Raisch 2013;Laamanen and Keil 2008;Prescott 2011, 2012;see Shi et al 2012 for an overview) and the role of experience on learning effects (Ellis et al 2011;Finkelstein and Haleblian 2002;Haleblian and Finkelstein 1999;Hayward 2002;Meschi and Métais 2013;Vermeulen and Barkema 2001; see Barkema and Schijven 2008b for an overview). We interconnect these two perspectives by introducing the concept of strategic consistency, which we define in this paper as the coherence of strategic directions of acquisitions within a series.…”

Relatedness and Acquirer Performance

“…Finkelstein and Haleblian (2002) find a positive and significant relationship between acquirer performance and their continuous measure of relatedness.…”

“…4 The benefits to similarity in this context arise because such dynamic complementarities may be greater if the industries in question share some basic features (March, 1991), or because some common characteristics facilitate their exploitation (Finkelstein & Haleblian, 2002;Prahalad & Bettis, 1985). The degree of dynamic complementarity between industries thus depends on the balance between variety and similarity (Christensen & Foss, 1997).…”

“…The most sophisticated versions use distances between SIC codes to compute continuous measures of relatedness. Finkelstein and Haleblian (2002), for example, consider up to six lines of businesses for each firm They assign scores of two, four, and six if the primary businesses match on the two-digit, threedigit, and four-digit levels, respectively. Comparison of the secondary businesses yields scores of one, two, and three for matches on the two-digit, three-digit, and four-digit levels, respectively.…”