The Influence of Organizational Acquisition Experience on Acquisition Performance: A Behavioral Learning Perspective
Haleblian, Jerayr, Finkelstein, Sydney, Administrative Science Quarterly
The vast majority of research on organization experience adopts a learning-curve perspective that predicts positive returns to experience. This work has been restricted, however, to the narrow context of manufacturing settings, where gains in manufacturing experience are associated with decreases in unit costs (e.g., Yelle, 1979; Dutton, Thomas, and Butler, 1984). Outside manufacturing settings, however, the effects of organizational experience may be more difficult to predict, and studies have often produced contradictory results. This is particularly true of the effects of an organization's prior acquisition experience on an acquisition's subsequent performance. To extrapolate findings from manufacturing settings to such other organizational situations may be misleading to organization researchers because it assumes that manufacturing conditions are similar to other organizational conditions, and the positive effects of experience found in manufacturing contexts will also be found wherever organization experience is applied from one event to another. For acquisitions, however, the outcomes of organizational experience may depend on the similarity between past acquisitions and the present acquisition, which, in turn, could determine the appropriateness of applying or disregarding past acquisition experience in managing a new acquisition. Hence, experience with a dissimilar acquisition may not be relevant.
We chose acquisitions as an appropriate context in which to study the effects of organizational experience for a number of reasons. First, a firm makes acquisitions that may vary from similar to dissimilar to previous acquisitions, which implies that there may be positive and negative effects of experience. Second, unlike other organizational actions, acquisitions are discrete and easily discernible events whose occurrence may be readily determined. Third, acquisitions may occur multiple times in an organization's history, so prior acquisition experience may be used for a subsequent acquisition and affect its performance. Fourth, the performance of an acquisition can be assessed objectively using abnormal stock price returns, a commonly used method to assess event performance within the finance (Brown and Warner, 1980, 1985) and strategic management (e.g., Chatterjee, 1986; Lubatkin and Shrieves, 1986) literatures. The "event" in this study is acquisitions.
We develop a contingency model drawn from a learning model in psychology that predicts that the effects of acquisition experience may range from positive to negative. This study makes a contribution to the organization experience and organization learning literature by developing a theoretical framework to understand the influence of organization experience across a broad variety of contexts based on this learning model and then empirically testing this theory to add a new perspective to our understanding of organizational acquisitions.
ACQUISITIONS AND ORGANIZATIONAL EXPERIENCE
Although organizational acquisitions are often unsuccessful (Porter, 1987), it has often been argued both in the business press and by academicians that firms with previous acquisition experience will do better than those without such experience (Lubatkin, 1983). While these arguments appear intuitive, especially in light of the literature on experience and learning curves (Dutton, Thomas, and Butler, 1984; Lieberman, 1987), the empirical work on acquisition experience and performance shows mixed results.
In one of the first analyses of acquisition experience and acquisition performance, Lubatkin (1982) examined the acquisition experience of firms listed on the Federal Trade Commission's Large Merger Series from 1948 to 1979. Contrary to his expectation, Lubatkin (1982) failed to find a significant association between acquisition experience and performance. Even though this study is one of the most complete examinations of the acquisition experience question to date, it was constrained by a reliance on monthly market returns, instead of daily returns, to measure acquisition performance. …