the choice among acquisitions, alliances, and divestitures
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The Choice Among Acquisitions, Alliances, and Divestitures. Villalonga , B. and McGahan , A. 2005 . Strategic Management Journal. Background. - PowerPoint PPT PresentationTRANSCRIPT
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The Choice Among Acquisitions, Alliances, and Divestitures
Villalonga, B. and McGahan, A. 2005. Strategic Management Journal
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Background
• Objective of paper is to examine the motives behind the acquisitions, alliances, and divestitures of Fortune 100 firms in the 1990s• Continuum of governance modes
• Ties to literature on boundary choice and alternative governance structures• In specific industries• Acquisitions vs. alliances• Decisions to form alliances and/or merge
• Authors study a broad range of strategic options and draw from a variety of theoretical perspectives • e.g. TCE, RBV, Agency theory, Internationalization theory
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Determinants of Boundary Choice
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Focal Firm Attributes (1)
• Intangible resources (TCE and RBV)• H1a: The firm’s technological resources are associated with the choice of
acquisitions over alliances, and alliances over divestitures• H1b: The firm’s marketing resources are associated with the choice of
acquisitions over alliances, and alliances over divestitures
• Ownership structure (Agency theory)• H2a: The level of insider ownership of the firm is associated with the
choice of divestiture over alliances, and alliances over acquisitions• H2b: The level of blockholder ownership of the firm is associated with the
choice of divestitures over alliances, and alliances over acquisitions • H3c: The level of institutional ownership of the firm is associated with the
choice of divestitures over alliances, and alliances over acquisitions
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Focal Firm Attributes (2)
• Acquisition, alliance, divestiture experience (Organizational learning)• H3a: The firm’s acquisition experience is associated with the choice
of acquisitions over both alliances and divestitures• H3b: The firm’s divestiture experience is associated with the choice
of divestitures over both alliances and acquisitions• H3c: The firm’s alliance experience is associated with the choice of
alliances over both acquisitions and divestitures
• Diversification (TCE, RBV, Agency)• H4a: The firm’s diversification level is associated with the choice of
acquisitions over alliances, and alliances over divestitures• H4b: The firm’s diversification level is associated with the choice of
divestitures over alliances, and alliances over acquisitions
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Relationship Between Focal and Target/Partner Firms
• Industry activity (TCE, RBV, and Asymmetric information)• H5: The relatedness between the focal firm and the target (or
partner) firm is associated with the choice of acquisitions over alliances, and alliances over divestitures
• Size balance (‘Digestibility’ theory)• H6: The size balance between the focal firm and the target (or
partner) firm is associated with the choice of divestitures over alliances, and alliances over acquisitions
• Prior alliances (Social embeddedness, Real options, and Corporate refocusing)• H7: The number of prior alliances between the firm and the target
(or partner) firm is positively associated with the choice of alliances over both acquisitions and divestitures
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Transaction – Focal Firm Relationship Attributes• Relatedness (TCE, RBV, and Asymmetric information)• H8: The relatedness between the firm and the activity that is subject to the
transaction is associated with the choice of acquisitions over alliances, and alliances over divestitures)
• Governance form specialization • H9a: The firm’s governance specialization is insignificantly associated with the
choice of governance form• H9b: The firm’s governance specialization is associated with the choice of
acquisitions over alliances, and alliances over divestitures• H9c: The firm’s governance specialization is associated with the choice of
divestitures over alliances, and alliances over acquisitions
• Recency of same-form governance experience• H10a: The recency of the firm’s same form governance experience is associated
with the choice of acquisitions over alliances, and alliances over divestitures• H10b: The recency of the firm’s same form governance experience is associated
with the choice of divestitures over alliances, and alliances over acquisitions
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Target/Partner Firm Attributes and Transaction Attributes
• Intangible resources (RBV)• H11a: The target (or partner) firm’s technological resources are
associated with the choice of acquisitions over alliances, and alliances over divestitures
• H11b: The target (or partner) firm’s marketing resources are associated with the choice of acquisitions over alliances, and alliances over divestitures
• Market transaction costs and internal organization costs (TCE)• H12a: The interaction between uncertainty and asset specificity is
associated with the choice of acquisitions over alliances, and alliances over divestitures
• H12b: The internal organization costs of integrating the target firm into the focal firm are associated with the choice of divestitures over alliances, and alliances over acquisitions
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Summary of Hypotheses
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Data and Sample
• 9,276 acquisitions, alliances, and divestitures announced and completed by 86 members of the Fortune 100 between 1990 and 2000
• Data are from the SDC (Joint Ventures and Alliances; Mergers and Acquisitions)
• Deal types grouped into three, seven, and nine categories for refined analysis
• Dependent variable: governance form
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Results (1)
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Results (2)
Boundary-expanding and boundary-contracting forms
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Conclusions
• Varying levels of theoretical support for hypotheses • e.g, TCE, RBV and internationalization (+/-); Agency theory
(+/-); Organizational learning (+) • Results imply that a multi-theoretical approach is needed to
study firms’ boundary choices • Limitations• Emphasis on the Fortune 100 firms• Validation of proxies (i.e,. governance form specialization,
recency of same-form experience)?• Future research• Alliances vs. divestitures (boundary-contracting choices)• Exploration of organizational learning explanations