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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 . 102105. doi:10.1016/j.lrp.2021.102105 (In Press)
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Official URL: http://dx.doi.org/10.1016/j.lrp.2021.102105
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 |
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| 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: | 10 April 2021 | ||||||
| Dates: |
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| Article Number: | 102105 | ||||||
| DOI: | 10.1016/j.lrp.2021.102105 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | In Press | ||||||
| Access rights to Published version: | Restricted or Subscription Access |
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