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Knowledge is frequently the focus of corporate acquisitions. It often cannot be acquired in efficient factor markets due to asymmetric information and because it may be bundled in teams or networks. However, variations in quality are harder to observe for knowledge-based assets than for tangible assets. This creates information dilemmas for buyers and, accordingly, a risk of overbidding, whenever a target is in a knowledge-intensive industry. This study found that most buyers took steps to mitigate the information dilemmas associated with knowledge-based assets. Specifically, buyers coped by (1) offering lower bid premia; (2) using contingent payment (e.g., stock or earnouts); and (3) increasing information both through lengthy negotiations and by avoiding tender offers. However, when the two firms drew on unrelated forms of expertise, buyers did not apply these strategies. It may be that a buyer's information needs are lower if little postacquisition integration is anticipated. An alternative explanation is that unrelated buyers may not be fully aware of the information dilemmas that they face. If so, they may be especially at risk of over-bidding. The contingency relationship identified here with respect to related expertise warrants further study. Both the resource-based and diversification literatures presume that relatedness is universally important. This study suggests that it may be particularly relevant when there are knowledge-based assets. [ABSTRACT FROM AUTHOR]

What if rent from a competitive advantage is appropriated so it cannot be observed in performance measures? The resource-based view was not formulated to examine who will get the rent. Yet, this essay argues that the factors leading to a resource-based advantage also predict who will appropriate rent. Knowledge-based assets are promising because firm-specificity, social complexity, and causal ambiguity make them hard to imitate. However, the roles of internal stakeholders may grant them a great deal of bargaining power especially relative to investors. This essay integrates the resource-based view with the bargaining power literature by defining the firm as a nexus of concocts. This new lens can help to explain when rent will be generated and, simultaneously, who will appropriate it. In doing so, it provides a more robust theory of firm performance than the resource-based view alone. It is also suggested that this lens might be useful for examining other theories of firm performance. [ABSTRACT FROM AUTHOR]