The Choice between Joint Ventures and Acquisitions: Insights from Signaling Theory

Reuer, J. and Ragozzino, R. The Choice between Joint Ventures and Acquisitions: Insights from Signaling Theory. 2012. Organization Science, Vol. 3: 1175-1190

45 Pages Posted: 29 Aug 2005 Last revised: 8 Apr 2014

See all articles by Jeffrey J. Reuer

Jeffrey J. Reuer

Purdue University - Krannert School of Management

Roberto Ragozzino

University of Liverpool; University of Tennessee

Date Written: January 1, 2012

Abstract

This paper extends information economics in corporate strategy and organizational governance research by using signaling theory to explain firms’ market entry modes. We exploit features of the IPO context to investigate how signals on newly-public firms shape other companies’ governance choices to form joint ventures with them versus acquire them. We also develop theoretical arguments on how the value of these signals will vary across exchange partners. The results reveal that companies are more apt to acquire versus partner with IPO firms taken public by reputable investment banks, compared to IPO firms associated with less prominent underwriters. Venture capitalist backing also appears to be a valuable signal for prospective acquirers, particularly when the acquirer and target reside in different industries and possess dissimilar knowledge bases. We also present evidence that signals affect target selection and the emergence of market segmentation for joint venture partners and acquisition candidates.

Keywords: Merger, acquisition, joint venture, ipo

JEL Classification: G3

Suggested Citation

Reuer, Jeffrey J. and Ragozzino, Roberto, The Choice between Joint Ventures and Acquisitions: Insights from Signaling Theory (January 1, 2012). Reuer, J. and Ragozzino, R. The Choice between Joint Ventures and Acquisitions: Insights from Signaling Theory. 2012. Organization Science, Vol. 3: 1175-1190 . Available at SSRN: https://ssrn.com/abstract=785905 or http://dx.doi.org/10.2139/ssrn.785905

Jeffrey J. Reuer (Contact Author)

Purdue University - Krannert School of Management ( email )

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

Roberto Ragozzino

University of Liverpool ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

HOME PAGE: http://https://www.liverpool.ac.uk/management/staff/roberto-ragozzino/

University of Tennessee ( email )

The Boyd Center for Business and Economic Research
Knoxville, TN 37996
United States

HOME PAGE: http://robertoragozzino.com

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