A Capabilities-Based Perspective on Target Selection in Acquisitions

Strategic Management Journal, Forthcoming

Ross School of Business Paper No. 1270

42 Pages Posted: 20 Mar 2015 Last revised: 20 Jun 2015

See all articles by Aseem Kaul

Aseem Kaul

University of Minnesota - Minneapolis

Brian Wu

University of Michigan, Stephen M. Ross School of Business

Date Written: March 18, 2015

Abstract

We develop a capabilities-based theory of acquirer target selection, arguing that acquirers will pursue both low capability targets in existing contexts to deploy existing capabilities, and high capability targets in new contexts to acquire new capabilities. These arguments are formalized in an analytical model that jointly considers the benefits and costs of acquisition as a function of target capability level and context. The predictions from this model are tested in the Chinese Brewing industry (1998-2007), with results showing that acquirers strongly prefer inferior targets in existing geographic markets, but are relatively more likely to choose superior targets in new markets, especially if they have strong acquisition capabilities. Our study provides insight into the factors driving target selection, and contributes to a capabilities-based understanding of acquisitions.

Keywords: Acquisitions, Organizational Capabilities, Acquisition Capabilities, Geographic Diversification, Target Choice

JEL Classification: C12, G34, L66, N65

Suggested Citation

Kaul, Aseem and Wu, Brian, A Capabilities-Based Perspective on Target Selection in Acquisitions (March 18, 2015). Strategic Management Journal, Forthcoming, Ross School of Business Paper No. 1270, Available at SSRN: https://ssrn.com/abstract=2580357

Aseem Kaul (Contact Author)

University of Minnesota - Minneapolis ( email )

321, 19th Avenue S
3-412 Carlson School of Management
Minneapolis, MN 55455
United States

Brian Wu

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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