Prior Alliances with Targets and Acquisition Performance in Knowledge-Intensive Industries

Posted: 26 May 2013 Last revised: 27 Jun 2013

See all articles by Akbar Zaheer

Akbar Zaheer

University of Minnesota - Twin Cities - Carlson School of Management

Exequiel Hernandez

University of Pennsylvania - The Wharton School

Sanjay Banerjee

University of Alberta - Department of Accounting, Operations & Information Systems

Date Written: October 1, 2009

Abstract

An important focus of the research on mergers and acquisitions is the conditions under which acquisitions create value for the acquiring firm's shareholders. Given that the acquisition process is plagued by serious issues of information asymmetry, which are exacerbated in the context of knowledge acquisitions, we examine whether prior alliances with potential targets reduce the information asymmetry enough to create “partner-specific absorptive capacity” and yield superior stock returns on acquisition, compared with acquisitions not preceded by alliances. We test our hypotheses on a sample of high-technology acquisitions by U.S. firms during 1990-1998 using an event study methodology to assess abnormal stock returns. We find, unexpectedly, that no significant general effect emerges for acquisitions with prior alliances. However, international acquisitions following alliances show significantly better returns relative to both acquisitions without prior alliances and domestic acquisitions. Additionally, stronger forms of prior alliances lead to better acquisition performance than weaker forms of alliances. Together, the results broadly support our thesis that partner-specific absorptive capacity may be at work and suggest that under certain prior alliance conditions, acquisitions can indeed create value for acquirers.

Keywords: alliances, mergers and acquisitions, acquisition, performance, partner-specific, absorptive, capacity, information, asymmetry, strong alliances, knowledge-intensive, industries

Suggested Citation

Zaheer, Akbar and Hernandez, Exequiel and Banerjee, Sanjay, Prior Alliances with Targets and Acquisition Performance in Knowledge-Intensive Industries (October 1, 2009). Organization Science, Vol. 21, No. 5, 2010, University of Alberta School of Business Research Paper No. 2013-110, Available at SSRN: https://ssrn.com/abstract=2269030

Akbar Zaheer

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Exequiel Hernandez

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Sanjay Banerjee (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

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