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
Date Written: January 1, 2012
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: Suggested Citation