David Souder

Synergy Sources, Target Autonomy, and Integration in Acquisitions:

Determining the appropriate level of integration is crucial to realizing value from acquisitions. Most prior research assumes that higher integration implies the removal of autonomy from target managers, which in turn undermines the functioning of the target firm if it entails unfamiliar elements for the acquirer. Using a survey of 86 acquisitions to obtain the richness of detail necessary to distinguish integration from autonomy, the authors argue and find that integration and autonomy are not the opposite ends of a single continuum. Certain conditions (e.g., when complementarity rather than similarity is the primary source of synergy) lead to high levels of both integration and autonomy. In addition, similarity negatively moderates the relationship between complementarity and autonomy when the target offers both synergy sources. In contrast, similarity does not moderate the link between complementarity and integration. The authors’ findings advance scholarly understanding about the drivers of implementation strategy and in particular the different implementation strategies acquiring managers deploy when they attempt to leverage complementarities, similarities, or both.

Facilitating tacit knowledge transfer: routine compatibility, trustworthiness, and integration in M & As

Purpose – This paper aims to theorize how tacit knowledge influences implementation success in mergers and acquisitions (M & As), and contrasts this with explicit knowledge. Tacit knowledge can be a source of sustained competitive advantage because its lack of codifiability precludes easy appropriation by competitors. However, such non-codifiability also makes it difficult to transfer knowledge within a firm. M & As exemplify this challenge because they are often motivated by opportunities for transferring knowledge. With differing demands for tacit and explicit knowledge across departments (Sales and Operations), the empirical results demonstrate how tacit routine compatibility affects implementation outcomes in different functions. Design/methodology/approach – This research draws from a survey of 86 M & A implementation processes between 1996 and 2002, using seemingly unrelated regression to analyze the predictions. Findings – There is strong empirical support that tacit routine compatibility leads to ...

Time Horizon of Investments in the Resource Allocation Process: Review and Framework for Next Steps

Corporate investment inherently relies on time horizon, as profits result from acquiring assets or developing capabilities that yield future benefits that exceed upfront costs. Despite the importance of time horizon to understanding resource allocation, knowledge about the subject has accumulated slowly. Our review therefore encompasses insights from several research streams that partially address the subject even though time horizon is not the central construct in any of them. We aim to clarify key constructs related to time horizon, organize prior research about the antecedents of time horizon, explain the implications of several theoretical traditions for time horizon, and detail the range of measures that have been used to capture time horizon empirically. By focusing narrowly on this topic but searching broadly for references, we provide integrative summaries of existing research and identify opportunities for new and unique research.

A Behavioral Understanding of Investment Horizon and Firm Performance

Observers have argued that firms overly emphasize short-term results at the expense of long-run value. Using a behavioral perspective, we analyze three hypotheses related to this general argument. First, we examine the association of investment time horizons with firm performance, contributing new theory that argues for a quadratic rather than linear association. Second, because the tendency toward immediate results could reflect stock market pressures, we consider how the interaction of investor patience and firm horizon relates to firm performance. Third, we examine the arguments implication that most firms have investment horizons at a level where marginal increases in horizon associate positively with firm performance. Measuring horizon as the expected useful lives of capital expenditures, we find empirical support for the hypothesized quadratic relation in a large-scale, multiyear sample of U.S. publicly held manufacturing firms and confirm that a majority of firms have horizons in the region where our models predict increases in horizon positively influence performance. We also find that the most positive returns occur when long horizon investments are aligned with investor patience.

Timing for Dollars: How Option Exercisability Influences Resource Allocation

Stock options have been advocated to encourage managers to make long-run investments like R&D and capital expenditures (CAPX) that entail upfront costs with the potential to generate favorable long-term returns. However, the effect of options on managerial decisions depends on managerial beliefs about how the stock market reacts to firm behavior. If, consistent with empirical evidence, managers believe that stock prices increase in the short term from increased R&D, but not CAPX, then stock option exercisability—which dictates when managers can receive option payouts—should influence resource allocation. We also consider the effect of changes in the value of options over time. Results from a study of more than 6,500 observations from about 1,000 manufacturing firms over 18 years show that unexercisable stock options positively influence CAPX but not R&D, while exercisable stock options positively influence R&D but not CAPX. Both patterns are consistent with behavior that increases managerial payoffs but not necessarily firm performance. In addition, we find an expected negative association between underwater options and CAPX but no evidence of a corresponding positive relation with R&D. Finally, we find partial evidence of a house money effect that makes allocations to CAPX and R&D sensitive to recent changes in option values.

Firm Repertoires and Performance: The Influence of Complementarity and Competition

Two perspectives exist on how firms should choose the set of actions, collectively known as a competitive repertoire, intended to generate superior returns. One is a position-based approach that em...

A Behavioral Perspective on the Choice of Alliance Governance Mode

This study provides a behavioral perspective on the firm’s choice of alliance governance mode. We argue that a firm’s choices between equity and non- equity alliances are influenced by two firm-lev...

WHICH FIRMS INVEST FOR THE LONG TERM? LONGITUDINAL EVIDENCE FROM CABLE TV OPERATORS.

Based on differences in survival prospects, low performers avoid profitable long horizon investments while high performers use such investments to sustain favorable competitive positions. The study also finds that the usefulness of stock options to promote long horizon investment is limited to the relatively short period when they are unexercisable.