The Persistent Effect of Geographic Distance in Acquisition Target Selection

• Published in: Organization science (Providence, R.I.) Vol. 24; no. 6; pp. 1805 - 1826
• Main Authors: Chakrabarti, Abhirup, Mitchell, Will
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01.11.2013; Institute for Operations Research and the Management Sciences
• Subjects: Acquisitions; Acquisitions & mergers; Acquisitions and mergers; business relatedness; Business structures; Chemicals; Chemicals industries; Corporate strategies; Decision making; Economic geography; Economic resources; Geodetic position; geographic distance; Geographic location; Geography; Industrial locations; Influence; Information; Information processing; Manufacturing; Manufacturing industries; mergers and acquisitions; Organizational analysis; Spatial analysis; Studies; Target acquisitions; Target company; target selection; U.S.A; New York; United Kingdom; United States > US
• ISSN: 1047-7039; 1526-5455
• DOI: 10.1287/orsc.1120.0811

Valuable resources often exist at distant points from a firm’s current locations, with the result that strategic decisions such as growth have a spatial dimension in which firms seek information and choose between geographically distributed alternatives. Studies show that geographic proximity facilitates the flow of resources, but there is limited understanding of factors that exacerbate or ease the impact of geographic distance when firms seek new resources. This paper argues that the difficulty of search increases with distance, particularly when search involves greater information processing, but that firms can partially overcome the constraints of distance with direct, contextual, and vicarious learning. We study 2,070 domestic acquisition announcements by U.S. chemical manufacturers founded after 1979. The results demonstrate the persistent effect of spatial geography on organizational search processes.