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The effect of prior alliance experience on acquisition performance


  • Shao-Chi Chang
  • Ming-Tse Tsai


Information asymmetry usually results in acquiring a target where post-acquisition performance is often disappointing. In this study, we examine whether previous bidder--target alliances mitigate the negative effect of information asymmetry. Further, in cases when the target firms in an acquisition are from the high technology or service industries or privately held firms, whereby the firms are composed of unique knowledge, intangible assets and less disclosed information, respectively, we test whether there are significantly more acquisitions when prior bidder--target alliances exist, as it is assumed that these alliances reduce the level of information asymmetry. We find on average the post acquisition stock performance is better when the purchasing firm acquires a prior alliance partner. Furthermore, when acquiring privately held target firms, the target firms are more likely to be previous alliance partners. Finally, when the target firms are ‘more informed’ (i.e. high technology, service or privately held firms), the post acquisition performance is disappointing. However, bidder--target alliances reduce the amount of value destroyed.

Suggested Citation

  • Shao-Chi Chang & Ming-Tse Tsai, 2013. "The effect of prior alliance experience on acquisition performance," Applied Economics, Taylor & Francis Journals, vol. 45(6), pages 765-773, February.
  • Handle: RePEc:taf:applec:45:y:2013:i:6:p:765-773
    DOI: 10.1080/00036846.2011.613767

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    Cited by:

    1. Kohli, Reena & Mann, Bikram Jit Singh, 2013. "Analyzing the likelihood and the impact of earnout offers on acquiring company wealth gains in India," Emerging Markets Review, Elsevier, vol. 16(C), pages 203-222.

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