The Development of Capabilities in New Firms

Strategic Management Journal, Vol. 31, No. 1, pp. 1-18, 2010

Posted: 31 Jan 2010

See all articles by Asli M. Arikan

Asli M. Arikan

Kent State University

Anita M. McGahan

University of Toronto - Rotman School of Management

Date Written: February 8, 2009

Abstract

This research explores evidence of corporate capabilities for conducting acquisition and alliance deals in young firms. We hypothesize that investors conjecture about the future based on information about a firm's capabilities. Each successive deal carries intrinsic value, creates experience, generates feedback, and yields information about the firm's underlying capabilities. We evaluate whether stock prices impute expectations that firms will capably pursue particular programs of acquisitions and alliances. The analysis covers how investor responses change across successive deals on the theory that firms with a concentrated program of deals may develop capabilities more intensively than those with programs that involve both acquisitions and alliances. The dataset covers the population of firms that went through an initial public offering (IPO) in the United States between 1988 and 1999. It contains information on all of their post-IPO acquisitions and alliances, and on how their stock prices changed in response to the announcement of each deal. The results suggest that within the first year after IPO, investors expect firms to execute particular streams of alliances and acquisitions that reflect their unique histories of demonstrated capabilities. We also find evidence that investors cannot fully anticipate deal programs. The findings support a capabilities-based view of the firm and also show that accurate inference using event-study methods may require digging deep into the early histories of firms.

Keywords: corporate capability, mergers and acquisitions, alliances, abnormal performance, experience, IPO, stock market reaction

JEL Classification: G34, G24, M10, M13

Suggested Citation

Arikan, Asli M. and McGahan, Anita M., The Development of Capabilities in New Firms (February 8, 2009). Strategic Management Journal, Vol. 31, No. 1, pp. 1-18, 2010, Available at SSRN: https://ssrn.com/abstract=1544529

Asli M. Arikan (Contact Author)

Kent State University ( email )

Kent, OH 44242
United States

Anita M. McGahan

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-6188 (Phone)

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