Academic journal article Global Journal of Business Research

The Effect of Innovation Capabilities and Experience on Cross-Border Acquisition Performance

Academic journal article Global Journal of Business Research

The Effect of Innovation Capabilities and Experience on Cross-Border Acquisition Performance

Article excerpt

ABSTRACT

Due to the integration of the European market, the globalization process, and the rising importance of technological innovation, there has been a surge in cross-border acquisition strategy for European firms. Innovative technology and experience are the main drivers behind firms' acquisition imperatives to realize sound performance. Based on the resource-based view and organizational learning perspective, our empirical research focuses on the effects of European firms' innovative capabilities and experience on their acquisition performance when targeting United States firms. The results indicate that both innovative capabilities and experience have a positive effect on acquisition performance. This suggests that in order to have successful acquisition performance, European firms need to reinforce their innovative capabilities and commit to accumulating experience in articulating cross-border acquisition strategy. In addition, we discuss the interaction effect that relatedness has on the acquisition performance of European firms. Our findings indicate that related acquisitions associated with redundant or similar innovative capabilities and acquisition experience hinder acquisition performance. We posit that relatedness has a negative moderating effect on acquisition performance.

JEL:M16

KEYWORDS: Resource-based view, organizational learning, cross-border acquisition, innovation capability, acquisition experience, relatedness.

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Merger and acquisition (M&A) has long been a key strategy for firms wishing to initiate strategic growth and expansion (Shimizu, Hitt, Vaidyanath, and Pisano, 2004). Acquisitions represent a significant strategic choice, with increased global activity over the last decade (Boeh, 2011). As the globalization of business radically increases, it is evident that firms encounter opportunities for growth through cross-border acquisitions (CBAs). The increasing globalization of business has heightened both the opportunities and the pressures for firms to engage in CBAs (Hitt, Ireland, and Lee, 2000). The recent decade has proven that the already unprecedented number of CBAs is continually increasing (UNCTAD, 2011). Typical phenomena observed with the current acquisitions streams include more global attributes, with the value of CBAs growing more significant (Bertrand and Zuniga, 2006). However, numerous studies suggest that the intended CBAs are not highly successful.

Various motives induce firms to pursue CBAs. Many acquirers pursue CBAs to enhance their capability to gain resources and knowledge (Bartlett and Ghoshal, 1988; Luo, 2000). Specifically, studies indicate that there is a high correlation between research and development (R&D) expenditures and M&A activity, with firms utilizing acquisition straetgy to obtain technology (Blonigen, 1997; Blonigen and Taylor, 2000; Kogut and Chang, 1991). This suggests that a technology and innovation seeking motive can be considered as an important driver of CBA. Previous studies have examined technological and innovative asset seeking intent in the context of European acquisitions, and observations of European M&A indicate growth in CBA activities (Sleuwaegen and Valentini, 2006). Scholars have posited that the integration of Europe, the introduction of the euro, the globalization process, and technological innovation are causal factors behind the increasing number of acquisitions in Europe (Petroulas, 2007; Sleuwaegen and Valentini, 2006). The integration of European markets has further contributed to the surge in CBAs as firms search beyond national borders for promising acquisition partners (Frey and Hussinger, 2011).

Innovation and technological motives have been found to be strong in the case of European CBAs. Narula (1999) asserts that the main imperative of the single European market initiative was to narrow the technological and economic gap between the European Union (EU) and the United States (US). …

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