Acquisition Performance Literature

There are three distinct ways in which extant acquisition research has operational-ized acquisition performance. First, a stream of studies has operationaloperational-ized

acqui-sition performance using share price movement based on event study methodolo-gy (e.g. Markides & Ittner 1994; Cakici, Hessel & Tandon 1996; Chang 1998;

Fuller, Netter & Stegemoller 2002; Markelevich 2003; Akhigbe et al. 2004;

Lopez-Duarte & Garcia-Canal 2007; Zhou et al. 2007; Larimo & Pynnönen 2008;

Swaminathan et al. 2008; Aybar & Ficici 2009; Mantecon 2009; Bednarczyk, Schiereck & Walter 2010; Brockman, Rui & Zou 2013). The second stream has operationalized acquisition performance based on accounting and financial measures (e.g. Eyssell 1989; Cannella & Hambrick 1993; Rahman 1993; Capron 1999; Reus 2004; Slangen 2006; Park et al. 2009; Ahammad & Glaister 2011;

Ertuna & Yamak 2011). The third stream of studies has operationalized acquisi-tion performance in terms of achievement of project specific motives and specific programs (e.g. Hitt et al. 1991; Steensma & Corley 2000; Ahuja & Katila 2001;

Hagedoorn & Duysters 2002; Cloodt et al. 2006; Puranam, Singh & Chaudhuri 2009; Grimpe 2007; Puranam & Srikanth 2007; Lahovnik & Malenkovic 2011).

The event study methodology assumes that market response to public information about the acquisitions based on the efficient market hypothesis (Aybar & Ficici 2009). That is, markets will understand the true value of an acquisition and will respond favorably to the announcement of the acquisitions leading to positive abnormal returns (ibid). While few of these studies contrast the influence of par-tial and full acquisition on shareholder value, their findings yielded contradictory findings.

For example, Lopez-Duarte and Garcia-Canal (2007) studied the stock market reaction of 682 Spanish FDIs within 1990-2003 in EU, OECD (non-EU), Latin America, and the rest of the world. Their findings suggested that full acquisition create shareholder value while partial acquisition has a non-significant relation-ship to shareholder value creation. They also found a positive but not statistically significant relationship between partial acquisition and shareholder value in coun-tries with policy instability. Similarly, Swaminathan et al. (2008) found no signif-icant relationship between partial acquisition and shareholder value. Markides and Ittner (1994) studied shareholder value creation within 1975-1988 through USA cross-border acquisition in Canada, Continental Europe, UK and Pacific. Their findings suggest that partial acquisition is not valued differently from full acquisi-tion. Larimo and Pynnönen (2008) studied 294 Finnish cross-border acquisition and wealth creation within 1986-2006 in USA, Germany, Sweden, Japan and Es-tonia. Their findings suggest that the abnormal return to partial acquirers needs future research. Zhou et al. (2007) studied the influence of information institu-tions on acquisition strategies performance of USA Firms in foreign markets.

They found out that firms that choose partial acquisition in opaque information environment performed better than firms that choose full acquisition.

Other studies (e.g., Cakici et al. 1996; Chang 1998; Fuller et al. 2002; Markele-vich 2003; Akhigbe et al. 2004; Aybar & Ficici 2009; Mantecon 2009; Bednar-czyk et al. 2010; Brockman et al. 2013) did not contrast returns to partial and full acquisition. However, some provide evidence for the role of institutions, motives and acquisitions integration in acquisition performance. For example, Brockman et al. (2013) found that in cross-border acquisitions, politically connected bidders tend to perform better than non-politically connected bidders in countries with weak legal systems or high levels of corruption. Mantecon (2009) found that toe-hold investments, equity JVs, use of stock as payment experienced excess cumu-lative abnormal returns in the presence of high integration difficulty and valuation uncertainty and investment risks. Markelevich (2003) found that value creating mergers (i.e. mergers aimed at synergies) creates more value than agency-motivated mergers.

The second stream of studies operationalized acquisition performance using ac-counting and financial measures such as return on assets, return on investments, return on sales, profitability, etc. Most of these studies have treated both partial and full acquisition as same (exception to Eyssell 1989; Ertuna & Yamak 2011).

However, they showed that organizational cultural compatibility, goal similarity, business relatedness (Park et al. 2009), knowledge transfer (Reus 2004), resource redeployment and asset divestiture (Capron 1999), cultural distance in the pres-ence of limited integration (Slangen 2006), cultural distance in the prespres-ence of strong integration capability (Ahammad & Glaister 2011) influences acquisition performance. While Cannella and Hambrick (1993) found a negative relationship between the departures of executives on acquisition performance, Rahman (1993) found no impact. Finally, the two studies that treated partial acquisition found (1) no substantive changes in financial performance following positive valuation ef-fects (Eyssell 1989); (2) returns to foreign partial acquirers in turkey display supe-rior performance by virtue of responding both to the efficiency concerns of trans-action cost theory and the legitimacy focus of institutional theory (Ertuna &

Yamak 2011).

The third stream of studies operationalized acquisition performance based on the achievement of project specific motives and specific programs such as knowledge transfer, innovation performance, R&D performance and success of integration.

These studies did not take into cognizance the varying acquisition types. The con-clusion of these studies is that certain specific factors increase the achievement of specific acquisition motives. For example, Lahovnik and Malenkovic (2011) identified transfer of skills, sharing of activities, strategic realignment and com-plimentary resources as four motives of acquisitions in bank and financial sector.

Ahuja and Katila (2001) found that the relatedness of the knowledge base of the

acquired and acquiring firm leads to innovative performance in acquisitions. On the contrary, Cloodt et al. (2006) found a curvilinear relationship to innovative performance. Some other studies found a positive relationship between R&D in-tensity, relatedness of technologies to technology performance of acquisitions (e.g. Hitt et al. 1991; Hagedoorn & Duysters 2002). Steensma and Corley (2000) found that sourcing imitable technologies through acquisitions results in sourcing performance. Puranam et al. (2006) found that structural integration decreases the likelihood of introducing new products for firms that have not launched products before being acquired and for all firms immediately after acquisition, but these effects disappear as innovation trajectories evolve. Grimpe (2007) found that standardization of systems; linking R&D units and symbiosis integration strategy will lead to the technological success of the acquisition. Puranam et al. (2009) found that experienced acquirers are better able to mitigate the disruptive conse-quences of the loss of autonomy entailed by integration and no evidence that they can achieve greater coordination benefits from integration.

These three streams of literature have important implications on acquisition per-formance. These studies show that institutions (political strategy, corruption, legal environment, national country distance), motives of acquisition and integration influences acquisition performance. However, they have two important limita-tions. First, acquisition performance has been measured in various ways leading to contradictory findings. For example, while studies utilizing event study meth-odology found no significant relationship between partial acquisition and share-holder value (Swaminathan et al. 2008) or no significantly difference between returns to partial acquisition and full acquisition (Markides & Ittner 1994); studies utilizing accounting and financial measures found that returns to foreign partial acquirers in Turkey display superior performance by virtue of responding both to the efficiency concerns of transaction cost theory and the legitimacy focus of in-stitutional theory (Ertuna & Yamak 2011). The contradictory finding can be at-tributed in part to the distinct interest of various research disciplines. While event study methodology is dominant in finance and accounting disciplines, finance and accounting measures is dominant by scholars from strategic management and international business. More so, the contradictory finding could be attributed to the fact that share price movement can be influenced by other events (Schoenberg 2006). Share price movement does not account for the long-term actualization of the motives of acquisition nor does it account for future profitability of the firm (Larsson & Finkelstein 1999; Papadakis & Thanos 2010).

Second, studies focused on the achievement of specific motives, and specific pro-grams do not account for the performance of partial acquisition nor did they show the context in which full acquisition performs better than partial acquisition.

These studies mainly considered all acquisitions to be the same. There is need for more refined measures of acquisition performance that takes into account the stra-tegic motives for setting up the subsidiary in foreign markets as it has been argued that the strategic motives for acquiring a subsidiary should play a role in the actu-alizations of the motives (Verbeke, Li & Goerzen 2009; Meglio & Risberg 2010).