Acquisition and Divestiture as a Response to Competitive Position and Market Structure

Abstract

One theory of acquisition motivation holds that some acquisition activity is a defensive reaction to weak or deteriorating industry conditions and competitive position. Designated the 'defensive diversification hypothesis', this motive has not been tested directly by relating firms' competitive circumstances to their subsequent acquisitive behaviour. This study does so. Results show that a firm's prior circumstances are related to the intensity of both its acquisitions and divestitures, as well as the type of firms acquired.

"Out with the Old, In with the New?: The Impact of Divestitures on Firm Performance"

“…Divestitures -which include the sale, spinoff or liquidation of resources by an ongoing corporation -are a critical mode of reconfiguration by which firms can modify their resource base. Much of the literature on divestitures has examined antecedents that drive firms' divestiture activity (Berry, 2010;Duhaime & Baird, 1987; e.g., Duhaime & Grant, 1984;Hopkins, 1991;R. O. Hoskisson & Johnson, 1992).…”

Product and geographic scope changes of multinational enterprises in response to international competition

“…Rather, it is likely to seek and exploit a profitable niche or sub-segment in the industry that it believes will secure returns, but will also check the escalation in rivalry. At the same time, incumbents can be expected to re-balance their product portfolio by engaging in long-term investments in promising new products that complement disputed product lines, effectively expanding product scope while lowering relatedness (Hopkins, 1991;Sirmon et al, 2007;Uhlenbruck et al, 2003). This allows incumbents to explore intertemporal economies of scope in order to maintain long-term competitive capabilities and rent-earning perspectives (Baden-Fuller & Volberda, 1997;Helfat & Eisenhardt, 2004;Ketchen, Snow, & Street, 2004b).…”

Business transformation in heterogeneous environments: The impact of market development and firm strength on retrenchment and growth reconfiguration

“…Studies of business dynamics have demonstrated that reconfiguring resources via modes such as acquisitions, alliances, internal development, and divestiture influences firm performance (Capron, 1999; Mitchell, 2000, 2004;Moliterno and Wiersema, 2007). The studies show that the motivation to reconfigure a firm's resource base can come from two sources: financial distress, where struggling firms face pressure to reconfigure resources in attempts to increase their operating efficiency (Bibeault, 1982;Robbins and Pearce, 1992), and financial strength, where strong firms reconfigure resources to improve their competitive position (Hopkins, 1991;Montgomery and Thomas, 1988;Koza, Tallman, and Ataay, 2011). In addition to such firm-level sources, studies of international business and institutional environments have argued that the extent of market development strongly affects business strategy and performance (Nelson, 1995;Hoskisson et al, 2000;Cuervo-Cazurra and Dau, 2009).…”