Does IT Matter to Acquisitions? The Impacts of IT Distance on Post-Acquisition Performance

Forthcoming at MIS Quarterly

46 Pages Posted: 29 Jan 2019 Last revised: 14 Mar 2022

See all articles by Kyunghee Lee

Kyunghee Lee

Wayne State University - Mike Ilitch School of Business

Kunsoo Han

McGill University

Animesh Animesh

McGill University

Alain Pinsonneault

McGill University - Desautels Faculty of Management

Date Written: January 16, 2019

Abstract

Although researchers have examined the role of dyadic dynamics (i.e., interactions between the acquirer and the target firm) in the success of acquisitions, little attention has been paid to the role of information technology (IT). In this study, we extend this stream of literature by examining how the pre-acquisition IT distance (i.e., the difference between the enterprise IT systems of the two firms that reflects the system incompatibility and resulting costs of system integration) affects the acquirer’s post-acquisition performance. To measure IT distance, we use a word embedding technique to map each firm’s IT systems portfolio to a low-dimensional embedding space and calculate the distance between firms in that space. Using data on U.S. firms’ acquisition activities over seven years, we find that IT distance is negatively associated with the acquirer’s post-acquisition performance. Also, the adverse effect of IT distance is stronger for acquisitions motivated by operational synergies, compared to those seeking non-operational synergies. This finding supports our theory that IT distance disrupts post-acquisition synergy creation, and more so when the combined firm has a greater need for tight integration to create acquisition synergies. This research contributes to the merger and acquisition (M&A) literature in management and IS by introducing a novel concept of IT distance and by theorizing and empirically examining its performance implications in acquisitions. The findings of this study can inform practitioners on how to devise IT strategies in corporate acquisitions to mitigate IT risks and achieve greater post-acquisition performance.

Keywords: IT distance, incompatibility of IT systems, corporate acquisitions, post-acquisition operating performance, natural language processing, word embedding, Word2Vec, Bayesian model averaging

JEL Classification: D22, G34, L22, M15

Suggested Citation

Lee, Kyunghee and Han, Kunsoo and Animesh, Animesh and Pinsonneault, Alain, Does IT Matter to Acquisitions? The Impacts of IT Distance on Post-Acquisition Performance (January 16, 2019). Forthcoming at MIS Quarterly, Available at SSRN: https://ssrn.com/abstract=3317174 or http://dx.doi.org/10.2139/ssrn.3317174

Kyunghee Lee (Contact Author)

Wayne State University - Mike Ilitch School of Business ( email )

5201 Cass Avenue
Detroit, MI 48202

Kunsoo Han

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Animesh Animesh

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Alain Pinsonneault

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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