Between a Rock and a Hard Place: To Grow or To Maintain? Studying the Effects of Cloud-Sourcing on M&A Growth

Abstract

Mergers and acquisitions (M&A) are a common mechanism deployed by firms to achieve growth. M&A-seeking firms that invest in information technology (IT) infrastructure, studies have shown, can significantly improve growth outcomes. Interestingly, however, while ownership of IT infrastructure can mitigate growth concerns on one hand, it can fuel maintenance concerns on the other. Maintenance concerns arise from the need to safeguard and sustain IT infrastructure. A recent technological innovation that promises to enable firms to address this trade-off between growth and maintenance is cloud-sourcing. Cloud-sourcing can drive growth by potentially decoupling the use of infrastructure from its maintenance. Adopting a property rights perspective, this study therefore explains and demonstrates the impact of cloud-sourcing on M&A growth. Using a novel dataset on cloud-sourcing investments of 1200 firms from 2010 to 2017, we find cloud-sourcing to positively affect M&A growth. We find the positive effects to be primarily contributed by public cloud-sourcing strategies. A series of analyses consistently support our proposed causal mechanism. We find cloud-sourcing to positively affect M&A growth when data analytics and cloud technologies are strategically orientated towards exploitation and organizational IT is operationally orientated towards informating. We also find cloud-sourcing to positively affect related rather than unrelated M&A growth. These results corroborate our key proposition that M&A growth is achieved through efficiency gains in information use for M&A decision-making. Our study makes several contributions to the growing research on IT and M&A.

Keywords: Mergers and acquisitions (M&A), cloud-sourcing, public cloud, private cloud, property rights