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Market reactions to acquisition announcements : the importance of signaling ‘why’ and ‘where’

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Aalbers, Rick (H.L.), McCarthy, Killian J. and Heimeriks, Koen H. (2021) Market reactions to acquisition announcements : the importance of signaling ‘why’ and ‘where’. Long Range Planning, 54 (6). 102105. doi:10.1016/j.lrp.2021.102105 ISSN 0024-6301.

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Official URL: http://dx.doi.org/10.1016/j.lrp.2021.102105

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Abstract

Acquisitions are risky events but not all acquisitions involve the same levels of risk. We suggest that the announced acquisition motive – the ‘why’ of the acquisition – is an important risk signal. We categorize acquisition motives and distinguish between acquisitions with ‘pure explore’ and ‘pure exploit’ motives. Recognizing that most acquisitions have multiple motives, we identify acquisitions with ‘ambidextrous’ motives – that is different combinations of explorative and exploitative motives – too. Then, building on recent contributions to signaling theory, we argue that the ‘why’ will matter more, if the ‘where’ pertains to a high-risk setting. We measure this using target-to-acquirer industry relatedness. We find that the market reacts more positively to pure acquisitions, aimed at exploration or exploitation, compared to ambidextrous acquisitions. We show that the market reacts more positively to ambidextrous acquisitions orientated towards exploitation than ambidextrous acquisitions orientated toward exploration. Finally, we find that relatedness moderates this relationship, in that the market is more willing to tolerate exploration in a related industry. Our core contribution is to the literatures on acquisition motives and ambidexterity. We provide new insights into the incidence of specific motives, the ways in which they are mixed, and the market's reaction to their announcement. In addition, we contribute to the emerging literature that takes on behavioral perspective of market reactions by showing that the ‘why’ and ‘where’ of an acquisition matter.

Item Type: Journal Article
Subjects: H Social Sciences > HD Industries. Land use. Labor
Divisions: Faculty of Social Sciences > Warwick Business School > Strategy & International Business
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Consolidation and merger of corporations, Strategic planning, High technology industries, Signals (Information theory)
Journal or Publication Title: Long Range Planning
Publisher: Elsevier
ISSN: 0024-6301
Official Date: December 2021
Dates:
DateEvent
December 2021Published
10 April 2021Available
5 April 2021Accepted
Volume: 54
Number: 6
Article Number: 102105
DOI: 10.1016/j.lrp.2021.102105
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
Date of first compliant deposit: 6 July 2021
Date of first compliant Open Access: 10 April 2023

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