Abstract

 


 



When do Buyers and Targets Draw on Related Resources? A Test of Between-firm Measures of Industry Relatedness in Acquisitions


Russell Wayne Coff


University of Wisconsin - Madison - School of Business

Donald E. Hatfield


Virginia Polytechnic Institute

July 1996


Abstract:     
The received view is that related acquisitions have more potential to create value than unrelated acquisitions. However, there are very few measures of relatedness between two firms. Existing measures are very crude relative to those used in diversification research (e.g., diversity of a single firm's portfolio). In addition, they do not reflect recent advances in resource-based theory. Relatedness is critical in acquisitions because it may indicate asymmetric information as well as buyer objectives. These, in turn, are factors that investors may respond to when an offer is announced. We develop and test between-firm relatedness measures based on products, technology, and human expertise. While all measures had some predictive validity, the expertise measure was slightly better at predicting investor response.

JEL Classification: G34, G12, G14

working papers series


Date posted: June 16, 1997  

Suggested Citation

Coff, Russell Wayne and Hatfield, Donald E., When do Buyers and Targets Draw on Related Resources? A Test of Between-firm Measures of Industry Relatedness in Acquisitions (July 1996). Available at SSRN: http://ssrn.com/abstract=8371

Contact Information

Russell Wayne Coff (Contact Author)
University of Wisconsin - Madison - School of Business ( email )
975 University Avenue
Madison, WI 53706
United States
Donald E. Hatfield
Virginia Polytechnic Institute ( email )
Blacksburg, VA 24061
United States
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