Disentangling the Roles of Equity Market and Strategic Alliances in M&As: Valuation and Search Problems

36 Pages Posted: 27 Nov 2007

See all articles by Jung-Chin Shen

Jung-Chin Shen

York University

Jeffrey J. Reuer

Purdue University - Krannert School of Management

Date Written: Feb, 2005

Abstract

Information economics offers a complementary framework relative to transaction cost economics to study corporate strategy. Nevertheless, the existing theory suffers from the lack of an argument to differentiate various remedies for contractual hazards when multiple remedies are available. We develop the argument that although both publicity via equity market and strategic alliances can serve as remedies for the asymmetric information problem in M&As, the different mechanisms underlying the two remedies suggest that only equity market is capable of overcoming the search problem in M&As. Consistent with the argument, the empirical evidence shows that firms rely on equity market and strategic alliances to mitigate the valuation problem associated with acquisitions of highly intangible targets. However, firms tend to use the equity market rather than strategic alliances to address the search problem associated with high spatial dispersion of exchange partners.

Keywords: information assymetry, mergers and acquisitions, alliances

JEL Classification: D82, D83, D21

Suggested Citation

Shen, Jung-Chin and Reuer, Jeffrey J., Disentangling the Roles of Equity Market and Strategic Alliances in M&As: Valuation and Search Problems (Feb, 2005). Available at SSRN: https://ssrn.com/abstract=1032413 or http://dx.doi.org/10.2139/ssrn.1032413

Jung-Chin Shen (Contact Author)

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Jeffrey J. Reuer

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
79
Abstract Views
621
rank
305,657
PlumX Metrics