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Many divestments are acquired (Laamanen, Brauer, & Junna, 2014; Weston, 1989) and a substantial percentage of acquisitions experience some form of divestment (Ravenscraft & Scherer, 1987; Weston, 1989), making the strategic options inexorably linked. However, divestment and acquisitions are rarely studied together. Divestment generally occurs during integration or the later stages of an acquisition. Meanwhile, target selection, the start of the acquisition process, is influenced by alliances (Porrini, 2004). Again, there is limited research with a combined focus on alliances and acquisitions (Shi, Sun, & Prescott, 2012). Further, international strategy and foreign market entry is often presented as a choice between cross-border acquisitions (CBA) and foreign direct investment (FDI), and what drives choices between these alternatives remains unclear (Tsang & Yamanoi, 2016). The problem of understanding corporate strategy from focusing only on the role acquisitions play is akin to only studying one side of a six-sided dice to describe the whole. The result is an incomplete picture of important relationships. This section raises awareness of this issue, and it also takes initial steps to address it by presenting research that compares acquisitions with alliances, divestment, and FDI.
In Chapter 1, Elio Shijaku, David King, and Ainhoa Urtasun examine how characteristics associated with transaction costs in the exchange of strategic resources with alliances contribute to acquisition activity. Increased awareness of different firm capabilities from a focal firm’s portfolio of alliances can inform acquisition decisions, leading to observations that alliances often precede acquisitions. In examining internalization of prior alliances with an acquisition, they argue it is more likely when there are market failures associated with uncertainty and opportunism. Empirical analysis finds that more than one source of market failure is often needed before a firm completes an acquisition of an alliance partner.
In a review of divestment research, Sina Amiri, David King, and Samuel DeMarie in Chapter 2 find (similar to the study of acquisitions) there is a need to integrate theoretical perspectives and look at divestment more holistically. For example, context associated with a firm’s environment, ownership (e.g., family firm), or experience appears to be important antecedents to restructuring. Additionally, how investors react to divestment is influenced by whether divestments are made as part of a firm’s larger acquisition strategy (Bingham, Heimeriks, Schijven, & Gates, 2015), suggesting the need to consider portfolio theory in acquisition research. Further, shared processes across acquisition and divestment activity may facilitate development of firm restructuring capabilities (Doan, Sahib, & van Witteloostuijn, 2018).
In Chapter 3, Oleksandra Kochura, Nicola Mirc, and Denis Lacoste provide a closer look at how strategy scholars approach and study divestitures and acquisitions, including the different ways they can be combined to restructure a firm’s portfolio of businesses. By arguing that acquisitions and divestitures are sequential on their own, the authors demonstrate that in business configurations, any one of these can precede another. Through the consolidation of the temporal interrelationships between acquisition and divestiture, this chapter aims to advance our understanding of various possible corporate restructuring patterns.
In Chapter 4, Nan Zhang and Joseph Clougherty examine the relationship between CBA and greenfield investments (GI). The establishment-mode choice literature considers these to be substitutes for conducting business in a host nation. Recent scholarship, however, posits a more complex relationship where distinctness, partial substitution, and even complementarity might better characterize the relationship between investment modes. This lack of consensus is partly driven by the presence of empirical challenges and potential endogeneity. To surmount these challenges, the authors invoke an estimation approach based on cross-price elasticities. US merger-policy enforcement constitutes a “price” directly affecting CBA that only indirectly affects GI via a substitutive or complementary relationship. Employing firm-level data covering 1,763 firms situated in 58 industries from 2003 to 2017, their panel-data empirical testing indicates that merger-policy investigations deter cross-border horizontal acquisitions and attract greenfield investments. In other words, empirical results support GI substituting for CBA.
References
- Bingham, C., Heimeriks, K., Schijven, M., &am...
