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We evaluate the efficiency of capital deployment for acquiring firms before mergers and acquisitions (M&As), defined as the return on invested capital net of the cost of capital, and link this measure to firms' postacquisition performance. Acquirers with higher preacquisition net returns on investment have superior long-run operating and stock performance than do acquirers with lower returns. Acquirers with low net returns on investment also underperform matching nonacquirers. The relationship between preacquisition investment return and postacquisition performance is weakened when chief executive officer turnover occurs after deal completion. These results imply that managerial ability in deploying capital and creating value for shareholders persists through M&As. History: Accepted by Wei Jiang, finance. Funding: Financial support from Boston University and Shanghai Advanced Institute of Finance is gratefully acknowledged. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2017.2766. Keywords: merger and acquisition . invested capital * stock return * return on assets * CEO turnover, 1. Introduction Large-scale mergers and acquisitions (M&As) require substantial capital. While good M&As lead to growth and value creation, bad M&As generate massive losses for acquiring firms' shareholders (e.g., Moeller [...]

We examine a merger between two competitors in a Bertrand-Edgeworth model. We find that the effects of merger depend on the tightness of capacity constraints. The combination of two firms has no price effect if and only if the capacity constraints of all firms are binding both before and after the merger. However, a merger may turn a binding capacity constraint into a slack one, which results in higher prices. In an industry where excess capacity drives the premerger prices of all firms to the marginal cost, a merger may cause prices to rise even though aggregate capacity remains constant. (JEL LI3, L40), I. INTRODUCTION A commonly held view among economists is that, in the absence of efficiency gains, horizontal mergers between oligopolistic firms raise prices. (1) But works by Froeb, Tschantz, and [...]

We propose a computationally simple semiparametric discrete choice estimator to model rich consumer heterogeneity. We assume groups of observably similar consumers have similar preferences, but allow preferences to vary freely across these groups. Model flexibility is easily adjusted by setting a single tuning parameter; we suggest a cross-validation method to do so. We analyze the model's properties in the context of hospital mergers, both analytically and via a Monte Carlo analysis. The model performs well for policy relevant substitution and welfare measures, even if misspecified, when the tuning parameter is set within the neighborhood of the value chosen by cross validation. (JEL C14, D12, II1, L41), I, INTRODUCTION Individual level data on consumer choices can significantly improve predictions of consumer substitution patterns (Berry, Levinsohn, and Pakes 2004). Over the past 20 years, these data have become [...]

Abstract. We study the strategic benefits of mergers and acquisitions (M&As) when competing information technology vendors sell different generations of the same product with different quality. We assume the new [...]

Although a sizable literature suggests that firms benefit from vulnerability to takeovers because it reduces agency problems, the threat of takeovers can also impose ex ante costs on firms by adversely affecting relationships with important stakeholders, such as major customers. We find that when firms have corporate customers as important stakeholders, an exogenous reduction in the threat of takeovers increases their ability to attract new customers and strengthens their relationships with existing customers, resulting in improvement in operating performance. The positive effect on operating performance is greater for suppliers that are likely to offer unique and durable products to their customers. Our results suggest a beneficial aspect of protection from takeovers when stakeholder relationships are important. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2252. Keywords: takeovers; corporate governance; product market relationships; business combination laws History: Received December 14, 2013; accepted April 25, 2015, by Wei Jiang, finance. Published online in Articles in Advance December 7, 2015., 1. Introduction An extensive literature suggests that an active takeover market is an important mechanism for reducing managerial slack and improving firm performance (e.g., Grossman and Hart 1980, Jensen 1986, [...]

The number of Chinese acquisitions in Europe is growing rapidly with the primary motivation of accessing advanced technology, knowhow and specialist capabilities. Detailed analysis of case studies shows that Chinese buyers have found ways to increase their absorptive capacity to gain benefits from these acquisitions by adopting post-acquisition integration strategies that focused on preserving and learning about the assets acquired, melding the capabilities acquired with complementary resources and knowledge from China to create new sources of competitive advantage, and by exploiting these new advantages in the China market before expanding into global markets. Implications of theory and practice are drawn. Keywords: Emerging Markets, Multinationals, Acquisitions. Absorptive Capacity. Cin'in Avrupa'daki satin almalari hizla buyuyor. Bundaki temel motivasyon gelismis teknoloji, teknik bilgi ve uzmanlik becerilerine erismektir. Detayli vaka calismalari Cinli alicilarin ozumseyici kapasitelerini artirmanin yollarini buldugunu gosteriyor. Bunlar satin alma sonrasindaki butunlesme stratejileri ile satin alinan varliklari koruma ve bunlardan ogrenme, mevcut tamamlayici kaynaklar ile Cin'den elde edilen bilgiyle satin almadan edinilen becerileri birlestirme ve bu yolla yeni rekabetci avantajin kaynaklarini yaratma, bu avantajlari kuresel pazarlara yayilmadan once Cin pazarinda kullanmaktir. Bunlarin kuramsal ve pratik sonuclari da sunuluyor. Anahtar Kelimeler : Yukselen Piyasalar, Cok-uluslu Sirketler, Satin Almalar, Ozumseyici Kapasite, Introduction The number of Chinese acquisitions of European companies has been growing rapidly in recent years. A recent study by the European Union identified 185 partial or full acquisitions of [...]

Cross-border mergers and acquisitions (CBMAs) have long been used as an important strategy for firms' international strategic expansion. Thus, CBMAs have become an increasingly important approach utilized by a large number of firms in multiple regions across the globe. It has gained in popularity over the last few decades. However, the occurrence of CBMAs has grown dramatically in the last few decades, academic research on this type of strategic action has not kept pace with the changes. Though there is considerable research in the area, it is unfortunately fragmented, leaving gaps that need to be addressed. Herein, the researchers have scrupulously reviewed the relevant literatures which pledge strategic supports for firm performance following CBMAs strategy under cross-national distance. The relevant literature on this topic is also tabulated and grouped by institutional based view to indicate major findings. Most importantly, the study identifies gaps in the literature and highlight ten institutional distance factors that provide directions that influence on firm performance following CBMAs in different institutional settings in different countries because institutions vary across countries because of their path-dependent nature. It has influence on firm performance following CBMAs. It is a fast and direct way for firms in one country to acquire advanced strategic assets in another country in order to improve their competitive advantage. This study is an effort to discuss the institutional distance (ID) factors that could influence on firm performance following CBMAs. Using the institution-based view (IBV) as a theoretical lens, this study emphasizes on the impact of formal and informal ID factors on firm performance following CBMAs. The study argues that formal institutional distance (political, economic, political, administrative, and infrastructural) could positively affect acquiring firm performance, while informal institutional distance (cultural, demographic, knowledge, connectedness, and geographical) could negatively affect acquiring firm performance. So, favourable institutional distance is obviously important for firms in demonstrating positive performing following CBMAs. JEL Classifications: G34; F23; M16 Keywords: Institutional distance; Institutional based view; Cross-border mergers and acquisitions; Firm performance, Infrastructure distance between countries., INTRODUCTION Corporations use cross-border mergers and acquisitions or CBMAs to grow their activities in foreign countries. The expansion of international markets in terms of product input and output has let [...]

We examine the effect of M&As conducted by U.S. and Chinese bidders (US-Japan and China-Japan M&As) on the stock prices of Japanese targets. We find that both types of M&As tend to increase the stock prices of the Japanese targets and that market reactions are significantly greater for US-Japan M&As than for China-Japan M&As. Additionally, capital participation produces greater market reactions to China-Japan M&As than other structures, while acquisition produces this effect in US-Japan M&As. Our results are consistent with previous research indicating that market reactions increase for bidders operating in a developed country with high-quality institutions and corporate governance. (JEL G32, G34), I. INTRODUCTION The purpose of this paper is to examine the value created by acquisitions of Japanese targets by U.S. and Chinese bidders (US-Japan M&A and China-Japan M&A). These two [...]

The number of Chinese acquisitions in Europe is growing rapidly with the primary motivation of accessing advanced technology, know how and specialist capabilities. Detailed analysis of case studies shows that Chinese buyers have found ways to increase their absorptive capacity to gain benefits from these acquisitions by adopting post-acquisition integration strategies that focused on preserving and learning about the assets acquired, melding the capabilities acquired with complementary resources and knowledge from China to create new sources of competitive advantage, and by exploiting these new advantages in the China market before expanding into global markets. Implications of theory and practice are drawn. Keywords: Emerging Markets, Multinationals, Acquisitions. Absorptive Capacity. Cin'in Avrupa'daki satin almalari hizla buyuyor. Bundaki temel motivasyon gelismis teknoloji, teknik bilgi ve uzmanlik becerilerine erismektir. Detayli vaka calismalari Cinli alicilarin ozumseyici kapasitelerini artirmanin yollarini buldugunu gosteriyor. Bunlar satin alma sonrasindaki butunlesme stratejileri ile satin alinan varliklari koruma ve bunlardan ogrenme, mevcut tamamlayici kaynaklar ile Cin'den elde edilen bilgiyle satin almadan edinilen becerileri birlestirme ve bu yolla yeni rekabetci avantajin kaynaklarini yaratma, bu avantajlari kuresel pazarlara yayilmadan once Cin pazarinda kullanmaktir. Bunlarin kuramsal ve pratik sonuclari da sunuluyor. Anahtar Kelimeler : Yukselen Piyasalar, Cok-uluslu Sirketler, Satin Almalar, Ozumseyici Kapasite, Introduction The number of Chinese acquisitions of European companies has been growing rapidly in recent years. A recent study by the European Union identified 185 partial or full acquisitions of [...]

These rationales for integration suggest that there are some pro-competitive reasons for potential merger efficiencies that courts should weigh as part of their analysis. Some literature has tested these hypotheses [...]

Entrepreneurs have two key aims in managing their ego-networks: extending reach to valuable resources and facilitating resource acquisition. This study provides a synthesis of the brokerage, cohesion, and embeddedness literatures [...]

This paper examines how information technology (IT) can contribute to value creation in horizontal acquisitions. We propose that acquisition value can be created when an acquirer redeploys its digital resources [...]

This paper investigates the effects of analyst recommendations issued after a merger announcement on deal completion. We find the probability of completion increases (decreases) with the favorability of acquirer (target) recommendations. Results from instrumental variables tests support causality running from recommendations to merger outcomes. Additional tests suggest that these relations are driven by target shareholders reassessing the merger offer in response to movements in acquirer and target valuations. We also find that favorably recommended firms in a proposed merger underperform following deal resolution, suggesting that investors overreact to postmerger announcement recommendations. Keywords: mergers; analysts; merger success; valuation History: Received November 19, 2013; accepted August 24, 2014, by Wei Jiang, finance. Published online in Articles in Advance March 5, 2015., 1. Introduction One of the most important questions in finance is how information generated by financial markets impacts real economic decisions. One potentially important source of such information is securities [...]

This paper discusses the interaction between revenue management and customer relationship management 1 for a firm that operates in a customer retention situation but faces limited capacity. We present a dynamic programming model for how the firm balances investments in customer acquisition and retention, as well as retention across multiple customer types. We characterize the optimal policy and discuss how the policy changes depending on capacity limitations. We then contrast the modeling results with those of a behavioral experiment in which subjects acted as managers making acquisition and retention decisions. In the modeling part of the paper, we introduce a concept of the value of an incremental customer (VIC), and show that when capacity is unlimited, VIC equals customer lifetime value (CLV), but when capacity is limited, VIC is much smaller and changes dynamically depending on the number of customers and their mix. As a result, the optimal spending is constant and depends on CLV for the firms with unlimited capacity, but changes dynamically and is generally unrelated to CLV when capacity is limited. In the experimental part, we introduce a concept of conditional optimality for the analysis of state-dependent decisions. Applying this concept to our data, we document a number of decision biases, specifically the subjects' tendency to overspend on retaining high-value customers and underspend on lower-value customers retention and acquisition. We show that providing CLV information exacerbates these biases and leads to a loss of net revenue when capacity is limited, but providing information about the marginal costs of acquisition and retention eliminated these biases and increases net revenue. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1842. Keywords: behavioral operations; revenue management; limited capacity; customer relationship management; customer lifetime value History: Received May 14, 2012; accepted September 9, 2013, by Yossi Aviv, operations management. Published online in Articles in Advance March 13, 2014., 1. Introduction Dynamic pricing and revenue management (RM) techniques have been a notable success in many industries. These techniques vary prices/availability over time to maximize the revenue a firm obtains [...]

This paper analyzes firms' choice of a merger or a strategic alliance in bundling their products with other complementary products. Tying two products of unequal value makes them equally valuable as they become inseparable for purchase. Consequently, firms can charge a higher price for the bundled products than before. If foreclosure is not the main purpose of bundling, firms would prefer strategic alliances to mergers because mergers only intensify competition by internalizing the complementarities of two products. In equilibrium, bundling occurs only through strategic alliances. (JEL L4, L11, L13, L23), I. INTRODUCTION This paper models firms' strategic choice of a merger or a strategic alliance in bundling their products with complementary products. Firms often practice bundling via a strategic alliance [...]

Drawing on insights from network dynamics and exchange theory. I develop and test arguments for the retention or dissolution of exchange relationships. I exploit mergers and acquisitions among advertising firms [...]

The literature on equity theory suggests that organizational members often use pay as the standard to identify and compare themselves to their peers. Drawing on equity theory and compensation research, this study examines the effect of top manager pay disparity on aspects of the merger and acquisition (M&A) integration process. In particular, this study argues that in the context of large, related deals involving firms of similar size, top managers of the acquired firm use pre-deal compensation information in order to compare themselves to top managers of the other firm. The negative pay disparity perceived by the acquired firm's top managers is posited to diminish productive communication and transparent explanations pertaining to M&A decisions, which in turn negatively affect firm performance during the integration process. Results from the study suggest that informational justice and perceived pay disparity together are important factors in determining the overall success of M&A integration. Also, the findings highlight the need for more research aimed at better understanding the drivers and effects of social and emotional dynamics that unfold during the M&A integration process., Informational justice, which captures the acquiring firm's efforts to justify decisions and procedures, is important to value creation when integrating large, related mergers and acquisitions (M&As), particularly involving two firms [...]

JEL Classification G30 This study examines the relationship between takeover premiums and management control. Takeover premiums are often justified by growth opportunities or the creation of synergies. However, some evidence [...]

I examine the problem of relational hazards between repeat exchange partners and the contingent roles of trade uncertainty land future exchange prospects in moderating the potentially conflicting effects of past [...]

This paper is concerned with systemic risk in an interbank market, modelled as a directed graph of interbank obligations. This builds on the modelling paradigm of Eisenberg and Noe [Eisenberg L, Noe TH (2001) Systemic risk in financial systems. Management Sci. 47(2):236-249] by introducing costs of default if loans have to be called in by a failing bank. This .immediately introduces novel and realistic effects. We find that, in general, many different clearing vectors can arise, among which there is a greatest clearing vector, arrived at by letting banks fail in succession until only solvent banks remain. Such a collapse should be prevented if at all possible. We then study situations in which consortia of banks may have the means and incentives to rescue failing banks. This again departs from the conclusions of the earlier work of Eisenberg and Noe, where in the absence of default losses there would be no incentive for solvent banks to rescue failing banks. We conclude with some remarks about how a rescue consortium might be constructed. Key words: contagion; interbank network; bank failure; merger History: Received August 8, 2010; accepted February 21, 2012, by Wei Xiong, finance. Published online in Articles in Advance September 11, 2012., 1. Introduction Over the last 10 or so years, there has been a growth of interest in the general phenomenon of the spread of bank failure through a network of [...]