The effect of prior alliance experience on acquisition performance

• Published in: Applied economics Vol. 45; no. 6; pp. 765 - 773
• Main Authors: Chang, Shao-Chi, Tsai, Ming-Tse
• Format: Journal Article
• Language: English
• Published: London Routledge 01.02.2013; Taylor and Francis Journals; Taylor & Francis Ltd
• Series: Applied Economics
• Subjects: acquisition; Acquisitions; Acquisitions & mergers; Alliances; Asymmetric information; Asymmetry; bidder-target alliance; Economic concentration; Economic performance; Financial performance; Information; information asymmetry; Measurement; Procurement; Stock returns; Studies; Target company
• ISSN: 0003-6846; 1466-4283
• DOI: 10.1080/00036846.2011.613767

Information asymmetry usually results in acquiring a target where post-acquisition performance is often disappointing. In this study, we examine whether previous bidder-target alliances mitigate the negative effect of information asymmetry. Further, in cases when the target firms in an acquisition are from the high technology or service industries or privately held firms, whereby the firms are composed of unique knowledge, intangible assets and less disclosed information, respectively, we test whether there are significantly more acquisitions when prior bidder-target alliances exist, as it is assumed that these alliances reduce the level of information asymmetry. We find on average the post acquisition stock performance is better when the purchasing firm acquires a prior alliance partner. Furthermore, when acquiring privately held target firms, the target firms are more likely to be previous alliance partners. Finally, when the target firms are 'more informed' (i.e. high technology, service or privately held firms), the post acquisition performance is disappointing. However, bidder-target alliances reduce the amount of value destroyed.