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Economies of scope and optimal due diligence in corporate acquisitions
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Reuer, J. J. and Sakhartov, A. (2021) Economies of scope and optimal due diligence in corporate acquisitions. Organization Science, 32 (4). pp. 1100-1119. doi:10.1287/orsc.2020.1417 ISSN 1047-7039.
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Official URL: https://doi.org/10.1287/orsc.2020.1417
Abstract
This study develops a theory of due diligence in corporate acquisitions. Using a formal model, the study situates due diligence in the context of prospective economies of scope, which are often sought by corporate acquirers but about which acquirers are incompletely informed. Relatedness, the key determinant of economies of scope, and ambiguity, the key determinant of incomplete information, are used to formally derive the optimal due diligence effort and the returns to acquirers that result from that effort. The derived theoretical predictions revisit the conventional wisdom that corporate acquirers cannot be too diligent or implicit assumption that such efforts are exogenous to the transaction. The predictions can be tested in future empirical research on corporate acquisitions, and they may also guide corporate acquirers on the optimal allocation of their research effort in acquisition deals.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance |
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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): | Economies of scope, Consolidation and merger of corporations, Reasonable care (Law) | ||||||||
Journal or Publication Title: | Organization Science | ||||||||
Publisher: | Institute for Operations Research and the Management Sciences (I N F O R M S) | ||||||||
ISSN: | 1047-7039 | ||||||||
Official Date: | July 2021 | ||||||||
Dates: |
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Volume: | 32 | ||||||||
Number: | 4 | ||||||||
Page Range: | pp. 1100-1119 | ||||||||
DOI: | 10.1287/orsc.2020.1417 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 9 September 2020 | ||||||||
Date of first compliant Open Access: | 5 March 2021 | ||||||||
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