IDEAS home Printed from https://ideas.repec.org/a/bla/stratm/v44y2023i4p1013-1052.html
   My bibliography  Save this article

Divestment of relational assets following acquisitions: Evidence from the biopharmaceutical industry

Author

Listed:
  • Vivek Tandon
  • Navid Asgari
  • Ram Ranganathan

Abstract

Research Summary We examine whether acquisitions affect the divestment of firms' alliance‐based relational assets. Using data from the biopharmaceutical industry and a matched case–control research design, we find that alliances are more likely to be terminated following acquisitions compared to alliances not subject to acquisitions. This higher termination likelihood is driven by acquisitions where the acquirer's alliance management capacity is stressed, and by alliances inherited from targets. The inherited alliance effect is attenuated by the target's partner's common connections with the acquirer but amplified by the target's partner's unique connections outside the merging firms' alliance portfolios. These findings are consistent with our relational view‐based theorizing on the post‐acquisition challenges of retaining alliance‐based assets, contributing to corporate strategy scholarship on alliances and acquisitions. Managerial Summary In many industries, firms' portfolios of interorganizational alliances enable them to realize novel complementarities and, thereby, enhance their performance. In such sectors, managers also frequently acquire other organizations to obtain access to critical resources. However, what managers may overlook is that acquisitions can destabilize existing alliance relationships. In this study, we show that the acquiring firm's capacity to effectively manage alliance‐based assets is stressed once it inherits the target firm's alliances. In general, target firm alliances become more challenging to sustain, and, in particular, those that hold a higher potential for novelty become more unstable. Consequently, when evaluating acquisitions, managers should look beyond obvious measures of a target alliance's value and assess the post‐acquisition integration challenges that may threaten its stability.

Suggested Citation

  • Vivek Tandon & Navid Asgari & Ram Ranganathan, 2023. "Divestment of relational assets following acquisitions: Evidence from the biopharmaceutical industry," Strategic Management Journal, Wiley Blackwell, vol. 44(4), pages 1013-1052, April.
  • Handle: RePEc:bla:stratm:v:44:y:2023:i:4:p:1013-1052
    DOI: 10.1002/smj.3456
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/smj.3456
    Download Restriction: no

    File URL: https://libkey.io/10.1002/smj.3456?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ashish Arora & Anand Nandkumar, 2012. "Insecure Advantage? Markets for Technology and the Value of Resources for Entrepreneurial Ventures," Strategic Management Journal, Wiley Blackwell, vol. 33(3), pages 231-251, March.
    2. James P. Walsh, 1988. "Top management turnover following mergers and acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 9(2), pages 173-183, March.
    3. Rajat Khanna & Isin Guler & Atul Nerkar, 2018. "Entangled decisions: Knowledge interdependencies and terminations of patented inventions in the pharmaceutical industry," Strategic Management Journal, Wiley Blackwell, vol. 39(9), pages 2439-2465, September.
    4. Juan Ma & Tarun Khanna, 2016. "Independent directors' dissent on boards: Evidence from listed companies in China," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1547-1557, August.
    5. Francisco Brahm & Jorge Tarziján, 2016. "Toward an integrated theory of the firm: The interplay between internal organization and vertical integration," Strategic Management Journal, Wiley Blackwell, vol. 37(12), pages 2481-2502, December.
    6. Kaplan, Steven N & Weisbach, Michael S, 1992. "The Success of Acquisitions: Evidence from Divestitures," Journal of Finance, American Finance Association, vol. 47(1), pages 107-138, March.
    7. Annette L. Ranft & Michael D. Lord, 2002. "Acquiring New Technologies and Capabilities: A Grounded Model of Acquisition Implementation," Organization Science, INFORMS, vol. 13(4), pages 420-441, August.
    8. Margarethe F. Wiersema & Harry P. Bowen, 2009. "The use of limited dependent variable techniques in strategy research: issues and methods," Strategic Management Journal, Wiley Blackwell, vol. 30(6), pages 679-692, June.
    9. Core, John E. & Guay, Wayne R. & Buskirk, Andrew Van, 2003. "Market valuations in the New Economy: an investigation of what has changed," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 43-67, January.
    10. Gautam Ahuja & Riitta Katila, 2001. "Technological acquisitions and the innovation performance of acquiring firms: a longitudinal study," Strategic Management Journal, Wiley Blackwell, vol. 22(3), pages 197-220, March.
    11. Akbar Zaheer & Bill McEvily & Vincenzo Perrone, 1998. "Does Trust Matter? Exploring the Effects of Interorganizational and Interpersonal Trust on Performance," Organization Science, INFORMS, vol. 9(2), pages 141-159, April.
    12. Harbir Singh, 1993. "Challenges In Researching Corporate Restructuring," Journal of Management Studies, Wiley Blackwell, vol. 30(1), pages 147-172, January.
    13. Manuela N. Hoehn‐Weiss & Samina Karim, 2014. "Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes," Strategic Management Journal, Wiley Blackwell, vol. 35(9), pages 1364-1385, September.
    14. Prashant Kale & Harbir Singh & Howard Perlmutter, 2000. "Learning and protection of proprietary assets in strategic alliances: building relational capital," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 217-237, March.
    15. Navid Asgari & Kulwant Singh & Will Mitchell, 2017. "Alliance portfolio reconfiguration following a technological discontinuity," Strategic Management Journal, Wiley Blackwell, vol. 38(5), pages 1062-1081, May.
    16. Laurence Capron & Will Mitchell, 2009. "Selection Capability: How Capability Gaps and Internal Social Frictions Affect Internal and External Strategic Renewal," Organization Science, INFORMS, vol. 20(2), pages 294-312, April.
    17. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    18. Bruce Kogut, 2000. "The network as knowledge: generative rules and the emergence of structure," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 405-425, March.
    19. Maurizio Zollo & Jeffrey J. Reuer & Harbir Singh, 2002. "Interorganizational Routines and Performance in Strategic Alliances," Organization Science, INFORMS, vol. 13(6), pages 701-713, December.
    20. Jay B. Barney, 1988. "Returns to bidding firms in mergers and acquisitions: Reconsidering the relatedness hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 9(S1), pages 71-78, June.
    21. Sea-Jin Chang & Jungwook Shim, 2015. "When does transitioning from family to professional management improve firm performance?," Strategic Management Journal, Wiley Blackwell, vol. 36(9), pages 1297-1316, September.
    22. Maurizio Zollo, 2009. "Superstitious Learning with Rare Strategic Decisions: Theory and Evidence from Corporate Acquisitions," Organization Science, INFORMS, vol. 20(5), pages 894-908, October.
    23. Richard A. Bettis & Constance E. Helfat & J. Myles Shaver & Anindya Ghosh & Ram Ranganathan & Lori Rosenkopf, 2016. "The impact of context and model choice on the determinants of strategic alliance formation: Evidence from a staged replication study," Strategic Management Journal, Wiley Blackwell, vol. 37(11), pages 2204-2221, November.
    24. Melanie Schreiner & Prashant Kale & Daniel Corsten, 2009. "What really is alliance management capability and how does it impact alliance outcomes and success?," Strategic Management Journal, Wiley Blackwell, vol. 30(13), pages 1395-1419, December.
    25. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    26. Jeffrey H. Dyer & Harbir Singh & William S. Hesterly, 2018. "The relational view revisited: A dynamic perspective on value creation and value capture," Strategic Management Journal, Wiley Blackwell, vol. 39(12), pages 3140-3162, December.
    27. Thomke, Stefan & von Hippel, Eric & Franke, Roland, 1998. "Modes of experimentation: an innovation process--and competitive--variable," Research Policy, Elsevier, vol. 27(3), pages 315-332, July.
    28. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LP, vol. 4(2), pages 154-167, June.
    29. Laurence Capron & Will Mitchell & Anand Swaminathan, 2001. "Asset divestiture following horizontal acquisitions: a dynamic view," Strategic Management Journal, Wiley Blackwell, vol. 22(9), pages 817-844, September.
    30. Phanish Puranam & Harbir Singh & Saikat Chaudhuri, 2009. "Integrating Acquired Capabilities: When Structural Integration Is (Un)necessary," Organization Science, INFORMS, vol. 20(2), pages 313-328, April.
    31. Seungwha (Andy) Chung & Harbir Singh & Kyungmook Lee, 2000. "Complementarity, status similarity and social capital as drivers of alliance formation," Strategic Management Journal, Wiley Blackwell, vol. 21(1), pages 1-22, January.
    32. Akbar Zaheer & Exequiel Hernandez & Sanjay Banerjee, 2010. "Prior Alliances with Targets and Acquisition Performance in Knowledge-Intensive Industries," Organization Science, INFORMS, vol. 21(5), pages 1072-1091, October.
    33. Aseem Kaul & Brian Wu, 2016. "A capabilities-based perspective on target selection in acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1220-1239, July.
    34. Vikas A. Aggarwal, 2020. "Resource congestion in alliance networks: How a firm's partners’ partners influence the benefits of collaboration," Strategic Management Journal, Wiley Blackwell, vol. 41(4), pages 627-655, April.
    35. Iacus, Stefano M. & King, Gary & Porro, Giuseppe, 2012. "Causal Inference without Balance Checking: Coarsened Exact Matching," Political Analysis, Cambridge University Press, vol. 20(1), pages 1-24, January.
    36. Melissa A. Schilling, 2009. "Understanding the alliance data," Strategic Management Journal, Wiley Blackwell, vol. 30(3), pages 233-260, March.
    37. Samina Karim & Laurence Capron, 2016. "Reconfiguration: Adding, redeploying, recombining and divesting resources and business units," Strategic Management Journal, Wiley Blackwell, vol. 37(13), pages 54-62, December.
    38. Maurizio Zollo & Sidney G. Winter, 2002. "Deliberate Learning and the Evolution of Dynamic Capabilities," Organization Science, INFORMS, vol. 13(3), pages 339-351, June.
    39. Nicholas S. Argyres & Janet Bercovitz & Kyle J. Mayer, 2007. "Complementarity and Evolution of Contractual Provisions: An Empirical Study of IT Services Contracts," Organization Science, INFORMS, vol. 18(1), pages 3-19, February.
    40. Frank T. Rothaermel, 2001. "Incumbent's advantage through exploiting complementary assets via interfirm cooperation," Strategic Management Journal, Wiley Blackwell, vol. 22(6‐7), pages 687-699, June.
    41. Navid Asgari & Vivek Tandon & Kulwant Singh & Will Mitchell, 2018. "Creating and taming discord: How firms manage embedded competition in alliance portfolios to limit alliance termination," Strategic Management Journal, Wiley Blackwell, vol. 39(12), pages 3273-3299, December.
    42. Jaideep Anand & Harbir Singh, 1997. "Asset Redeployment, Acquisitions And Corporate Strategy In Declining Industries," Strategic Management Journal, Wiley Blackwell, vol. 18(S1), pages 99-118, July.
    43. Rui J. P. de Figueiredo & Emilie R. Feldman & Evan Rawley, 2019. "The costs of refocusing: Evidence from hedge fund closures during the financial crisis," Strategic Management Journal, Wiley Blackwell, vol. 40(8), pages 1268-1290, August.
    44. Dovev Lavie, 2007. "Alliance portfolios and firm performance: A study of value creation and appropriation in the U.S. software industry," Strategic Management Journal, Wiley Blackwell, vol. 28(12), pages 1187-1212, December.
    45. Richard Williams, 2012. "Using the margins command to estimate and interpret adjusted predictions and marginal effects," Stata Journal, StataCorp LP, vol. 12(2), pages 308-331, June.
    46. Alexis Diamond & Jasjeet S. Sekhon, 2013. "Genetic Matching for Estimating Causal Effects: A General Multivariate Matching Method for Achieving Balance in Observational Studies," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 932-945, July.
    47. Jeffrey H. Dyer & Wujin Chu, 2003. "The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea," Organization Science, INFORMS, vol. 14(1), pages 57-68, February.
    48. Glenn Hoetker, 2007. "The use of logit and probit models in strategic management research: Critical issues," Strategic Management Journal, Wiley Blackwell, vol. 28(4), pages 331-343, April.
    49. Peter J. Lane & Jane E. Salk & Marjorie A. Lyles, 2001. "Absorptive capacity, learning, and performance in international joint ventures," Strategic Management Journal, Wiley Blackwell, vol. 22(12), pages 1139-1161, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stienstra, Miranda, 2020. "The determinants and performance implications of alliance partner acquisition," Other publications TiSEM 7fdee0c2-d4d2-4f5b-95e3-2, Tilburg University, School of Economics and Management.
    2. Dovev Lavie & Randi Lunnan & Binh Minh T. Truong, 2022. "How does a partner's acquisition affect the value of the firm's alliance with that partner?," Strategic Management Journal, Wiley Blackwell, vol. 43(9), pages 1897-1926, September.
    3. Aseem Kaul & Brian Wu, 2016. "A capabilities-based perspective on target selection in acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1220-1239, July.
    4. Mahka Moeen & Will Mitchell, 2020. "How do pre‐entrants to the industry incubation stage choose between alliances and acquisitions for technical capabilities and specialized complementary assets?," Strategic Management Journal, Wiley Blackwell, vol. 41(8), pages 1450-1489, August.
    5. McCarthy, Killian J & Aalbers, Hendrik Leendert, 2022. "Alliance-to-acquisition transitions: The technological performance implications of acquiring one's alliance partners," Research Policy, Elsevier, vol. 51(6).
    6. Van Wijk, Raymond & Nadolska, Anna, 2020. "Making more of alliance portfolios: The role of alliance portfolio coordination," European Management Journal, Elsevier, vol. 38(3), pages 388-399.
    7. Akbar Zaheer & Exequiel Hernandez & Sanjay Banerjee, 2010. "Prior Alliances with Targets and Acquisition Performance in Knowledge-Intensive Industries," Organization Science, INFORMS, vol. 21(5), pages 1072-1091, October.
    8. Martinez-Noya, Andrea & Narula, Rajneesh, 2018. "What more can we learn from R&D alliances? : A review and research agenda," MERIT Working Papers 2018-022, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    9. Uriel Stettner & Dovev Lavie, 2014. "Ambidexterity under scrutiny: Exploration and exploitation via internal organization, alliances, and acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 35(13), pages 1903-1929, December.
    10. Kavusan, K., 2015. "Essays on capability development through alliances," Other publications TiSEM 8eb736a5-b217-4718-ac13-d, Tilburg University, School of Economics and Management.
    11. Aghasi, Keivan & Colombo, Massimo G. & Rossi-Lamastra, Cristina, 2017. "Acquisitions of small high-tech firms as a mechanism for external knowledge sourcing: The integration-autonomy dilemma," Technological Forecasting and Social Change, Elsevier, vol. 120(C), pages 334-346.
    12. Junichi Yamanoi & Qing Cao, 2014. "Competition and termination of the alliances between asymmetric partners: The case of Japanese department stores," Asia Pacific Journal of Management, Springer, vol. 31(4), pages 949-971, December.
    13. Koo, JaSeung & Yamanoi, Junichi & Sakano, Tomoaki, 2020. "Acquisition announcements and stock market valuations of acquiring firms’ alliance partners: A transaction cost perspective," Journal of Business Research, Elsevier, vol. 118(C), pages 129-140.
    14. Hagedoorn, John & Wang, Ning, 2012. "Is there complementarity or substitutability between internal and external R&D strategies?," Research Policy, Elsevier, vol. 41(6), pages 1072-1083.
    15. Vikas A. Aggarwal, 2020. "Resource congestion in alliance networks: How a firm's partners’ partners influence the benefits of collaboration," Strategic Management Journal, Wiley Blackwell, vol. 41(4), pages 627-655, April.
    16. Steffen Runge & Christian Schwens & Matthias Schulz, 2022. "The invention performance implications of coopetition: How technological, geographical, and product market overlaps shape learning and competitive tension in R&D alliances," Strategic Management Journal, Wiley Blackwell, vol. 43(2), pages 266-294, February.
    17. Markku Maula & Wouter Stam, 2020. "Enhancing Rigor in Quantitative Entrepreneurship Research," Entrepreneurship Theory and Practice, , vol. 44(6), pages 1059-1090, November.
    18. Julia Bodner & Laurence Capron, 2018. "Post-merger integration," Journal of Organization Design, Springer;Organizational Design Community, vol. 7(1), pages 1-20, December.
    19. Bhussar, Manjot S. & Sexton, Jennifer C. & Zorn, Michelle L. & Song, Yue, 2022. "High-tech acquisitions: How acquisition pace, venture maturity, and founder retention influence firm innovation," Journal of Business Research, Elsevier, vol. 142(C), pages 620-635.
    20. Renko, Maija & Yli-Renko, Helena & Denoo, Lien, 2022. "Sold, not bought: Market orientation and technology as drivers of acquisitions of private biotechnology ventures," Journal of Business Venturing, Elsevier, vol. 37(1).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:stratm:v:44:y:2023:i:4:p:1013-1052. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/0143-2095 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.