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The Choice Between Joint Ventures and Acquisitions: Insights from Signaling Theory

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  • Jeffrey J. Reuer

    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Roberto Ragozzino

    (School of Management, University of Texas at Dallas, Richardson, Texas 75080)

Abstract

This paper extends information economics in corporate strategy and organizational governance research by using signaling theory to explain firms' market entry modes. We exploit features of the initial public offering (IPO) context to investigate how signals on newly public firms shape other companies' governance choices to form joint ventures with them versus acquiring them. We also develop theoretical arguments on how the value of these signals will vary across exchange partners. The results reveal that companies are more apt to acquire, versus partner with, IPO firms taken public by reputable investment banks compared with IPO firms associated with less prominent underwriters. Venture capitalist backing also appears to be a valuable signal for prospective acquirers, particularly when the acquirer and target reside in different industries and possess dissimilar knowledge bases. We also present evidence that signals affect target selection and the emergence of market segmentation for joint venture partners and acquisition candidates.

Suggested Citation

  • Jeffrey J. Reuer & Roberto Ragozzino, 2012. "The Choice Between Joint Ventures and Acquisitions: Insights from Signaling Theory," Organization Science, INFORMS, vol. 23(4), pages 1175-1190, August.
    • Handle: RePEc:inm:ororsc:v:23:y:2012:i:4:p:1175-1190
    DOI: 10.1287/orsc.1110.0692
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    7. Tao, Fang & Liu, Xiaohui & Gao, Lan & Xia, Enjun, 2017. "Do cross-border mergers and acquisitions increase short-term market performance? The case of Chinese firms," International Business Review, Elsevier, vol. 26(1), pages 189-202.
    8. Ilya R. P. Cuypers & Youtha Cuypers & Xavier Martin, 2017. "When the target may know better: Effects of experience and information asymmetries on value from mergers and acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 38(3), pages 609-625, March.
    9. Roberto Ragozzino & Dane P. Blevins, 2016. "Venture–Backed Firms: How Does Venture Capital Involvement Affect Their Likelihood of Going Public or Being Acquired?," Entrepreneurship Theory and Practice, , vol. 40(5), pages 991-1016, September.
    10. Jeffrey J. Reuer & Ramakrishna Devarakonda, 2017. "Partner Selection in R&D Collaborations: Effects of Affiliations with Venture Capitalists," Organization Science, INFORMS, vol. 28(3), pages 574-595, June.
    11. Yunjae Bae & Kyungsuk Lee & Taewoo Roh, 2020. "Acquirer’s Absorptive Capacity and Firm Performance: The Perspectives of Strategic Behavior and Knowledge Assets," Sustainability, MDPI, vol. 12(20), pages 1-28, October.
    12. Brian T. McCann & Jeffrey J. Reuer & Nandini Lahiri, 2016. "Agglomeration and the choice between acquisitions and alliances: An information economics perspective," Strategic Management Journal, Wiley Blackwell, vol. 37(6), pages 1085-1106, June.
    13. Tong, Xun & Lai, Kee-hung & Lo, Chris K.Y. & Cheng, T.C.E., 2022. "Supply chain security certification and operational performance: The role of upstream complexity," International Journal of Production Economics, Elsevier, vol. 247(C).
    14. Haifeng Wang & Pengfei Han & Weishu Liu, 2018. "How to Improve Sustainable Competitive Advantage from the Distributor and the Supplier Networks: Evidence from the Paper-Making Industry in China," Sustainability, MDPI, vol. 10(6), pages 1-13, June.
    15. Hong Zhu & Qi Zhu, 2016. "Mergers and acquisitions by Chinese firms: A review and comparison with other mergers and acquisitions research in the leading journals," Asia Pacific Journal of Management, Springer, vol. 33(4), pages 1107-1149, December.
    16. Julian Bafera & Simon Kleinert, 2023. "Signaling Theory in Entrepreneurship Research: A Systematic Review and Research Agenda," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2419-2464, November.
    17. Fuentelsaz, Lucio & Garrido, Elisabet & González, Minerva, 2020. "Ownership in cross-border acquisitions and entry timing of the target firm," Journal of World Business, Elsevier, vol. 55(2).
    18. Cabaleiro-Cerviño, Goretti & Burcharth, Ana, 2020. "Licensing agreements as signals of innovation: When do they impact market value?," Technovation, Elsevier, vol. 98(C).

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