Disentangling the microfoundations of acquisition behavior and performance

• Author: Constance E. Helfat,Philipp Meyer‐Doyle,Sunkee Lee
• Date: 01 November 2019
• DOI: http://doi.org/10.1002/smj.3069
• Published date: 01 November 2019

RESEARCH ARTICLE

Disentangling the microfoundations of acquisition

behavior and performance

Philipp Meyer-Doyle

1

| Sunkee Lee

2

| Constance E. Helfat

3

1

Strategy Area, INSEAD, Singapore

2

Organizational Behavior and Theory

Group, Tepper School of Business,

Carnegie Mellon University, Pittsburgh,

Pennsylvania

3

Strategy and Management Group, Tuck

School of Business at Dartmouth, Hanover,

New Hampshire

Correspondence

Sunkee Lee, Tepper School of Business,

Carnegie Mellon University, 5000 Forbes

Avenue, Pittsburgh, PA 15213.

Email: sunkeelee@cmu.edu

Abstract

Research Summary:The acquisition literature has

highlighted that both firm-level and manager-level factors

shape acquisition outcomes, yet little is known about their rel-

ative contribution. We conduct a variance decomposition

analysis to explore the contribution of CEO-level versus firm-

level factors to acquisition behavior and performance. We

also extend the methodology of variance decomposition in

strategic management research by employing Poisson multi-

level models, and deriving the percentage of variance attribut-

able to each level in a four-level model. Although CEO and

firm effects both explain a substantial share of the variance in

acquisition behavior, the CEO-effect is notably larger. CEO-

level factors also drive a large portion of the variance in acqui-

sition performance. Overall, our study contributes to the liter-

atures on acquisitions and variance decomposition, and has

implications for dynamic capabilities.

Managerial Summary:How much do firm-level factors

and CEO-level factors matter for explaining acquisition

behavior and acquisition performance? This question is

not only relevant for researchers but also for practitioners

who seek to better understand what drives acquisitions

and their outcomes. To help answer this question, our

study conducts a variance decomposition analysis of

acquisition behavior and acquisition performance. We find

that both CEO-level factors and firm-level factors explain

a substantial portion of the variance in acquisition behav-

ior, but that CEO-level factors matter relatively more. We

Philipp Meyer-Doyle and Sunkee Lee contributed equally to this study.

Received: 14 January 2018 Revised: 3 May 2019 Accepted: 9 May 2019 Published on: 9 August 2019

DOI: 10.1002/smj.3069

Strat Mgmt J. 2019;40:1733–1756. wileyonlinelibrary.com/journal/smj © 2019 John Wiley & Sons, Ltd. 1733

also find that CEO-level factors also explain a substantial

portion of the variance in acquisition performance.

KEYWORDS

CEO, dynamic capabilities, mergers and acquisitions,

microfoundations of firm capabilities and strategy, variance

decomposition

1|INTRODUCTION

The literature on mergers and acquisition (M&A) has highlighted the important role that acquisitions

play in enabling firms to achieve their growth objectives (Capron & Mitchell, 2012; Hitt,

Hoskisson, & Ireland, 1990), enter new product or geographic markets (Lee & Lieberman, 2010;

Slangen & Hennart, 2007), fill capability gaps (Kaul & Wu, 2016), innovate (Ahuja & Katila, 2001;

Puranam, Singh, & Zollo, 2006; Graebner, Eisenhardt, & Roundy, 2010), take advantage of econo-

mies of scale or scope (Rabier, 2017; Seth, 1990; Singh & Montgomery, 1987), or reconfigure, rede-

ploy or modify their resources (e.g., Capron & Mitchell, 1998a, 1998b; Karim & Mitchell, 2000;

Anand & Singh, 1997; Helfat et al., 2007). Not surprisingly, acquisitions have become a popular

mode of corporate development and companies are engaging in acquisitions in record numbers

(Financial Times, 2018). Given the important role that acquisitions can play, a firm's capacity to

source and realize acquisition opportunities, as well as create and capture value from its acquisitions,

can be seen as a critical factor shaping its overall performance and long-term survival. Indeed, prior

research has viewed the firm's capacity to engage in mergers and acquisitions as an important

dynamic capability (Helfat et al., 2007; Bingham, Heimeriks, Schijven, & Gates, 2015; Zollo & Win-

ter, 2002; Bingham, Heimeriks, & Meyer-Doyle, 2017).

Prior studies have provided important insights into antecedents of acquisition behavior and perfor-

mance (Haleblian, Devers, McNamara, Carpenter, & Davison, 2009; Barkema & Schijven, 2008;

King, Dalton, Daily, & Covin, 2004). While papers traditionally have highlighted the role of firm-

level factors such as organizational acquisition experience, knowledge codification, the degree of

postmerger integration, and the nature of acquisition programs (Zollo & Singh, 2004; Haleblian &

Finkelstein, 1999; Laamanen & Keil, 2008), research has also focused on manager-level drivers of

acquisition behavior and postacquisition performance including expertise or prior experience, mana-

gerial response to performance incentives, or hubris (Chen, Huang, & Meyer-Doyle, 2017;

Nadolska & Barkema, 2014; Sanders, 2001; Hayward & Hambrick, 1997). Despite a great deal of

prior research on acquisitions, little is known about the relative contribution of firm-level and

manager-level drivers in shaping acquisition outcomes. Yet, investigating this question can build

understanding about the relative drivers of heterogeneity in acquisition behavior and postacquisition

performance, which could inform future research and ultimately have practical implications.

This paper aims to address the lack of evidence in the literature on mergers and acquisitio ns

regarding the relative contribution of firm-level versus manager-level factors to acquisition behavior

and performance. Both firms and managers may differ substantially in their capacity and motivation

to engage in acquisitions, and in their ability to create and capture value from these acquisitions. To

investigate this heterogeneity, we conduct a variance decomposition analysis of firms' acquisition

behavior—specifically, the number, size, type, and quality of acquisitions undertaken each year—as

1734 MEYER-DOYLE ET AL.