A Stream of Research on Acquisitions and Risk
Abstract John Haleblian
Can firms become so desperate for growth that they overpay for acquisitions? In this paper we draw on work in behavioral learning theory and risk-taking to explore this question by developing a theory of desperation in the context of growth. We suggest two key drivers of such desperation: (1) when a firm’s organic growth is low, paying handsomely for acquisitions may be one of the last remaining options for growth, and (2) when a firm becomes dependent on acquisitions for continuing growth, it becomes vulnerable to overpaying for acquisitions. While such pressures to grow via acquisition can be intense, we also test whether the benefits of acquisition experience—from both acquirers and their advisors—helps to mitigate the downside of desperation. We test these ideas in a sample of firms in the banking industry between 1994 and 2005. Our results are supportive of this theory of desperation, although our findings on the moderating role of acquisition experience highlight the preeminent role of advisor experience over acquirer experience. Taken together, this study introduces, and tests, a new theoretical perspective on firm behavior in the context of growth, and suggests how such a perspective might be applicable in other contexts as well.
Building on the codification and dynamic capabilities literatures, we pursue deeper insight into the underlying mechanisms of deliberate learning in the context of post-acquisition integration. We argue that experience codification gives rise to inertial forces that hamper the customization of routines to any given acquisition. We theorize, therefore, that successful acquirers develop higher-order routines – as manifested in two complementary sets of concrete organizational practices – that serve to prevent the generalization of inapplicable (zero-order) codified routines. After drawing on in-depth qualitative data to help build our theoretical argument, we test it formally based on unique survey data on 85 active acquirers.
|Patricia de Wilde-Mes|