Relatedness and Acquirer Performance
Abstract
While the strategic management literature suggests that related diversification
is superior to unrelated diversification, there is little evidence that
acquirers benefit from pursuing related targets. We argue that the empirical
literature is plagued by poor measures of relatedness. Moreover,
many empirical studies do not control adequately for the characteristics of
the market for corporate control. We argue that not only value creation,
but also value appropriation, depend on the relatedness of acquirer and
target. Using an improved measure of relatedness, we provide empirical
evidence that acquirer returns are positively and significantly correlated
with relatedness.
Citation
Advances in Mergers and Acquisitions, vol. 5 (Amsterdam: Elsevier, 2006), pp. 9-24.