From crisis to opportunity: environmental jolt, corporate acquisitions, and firm performance

Abstract

This study incorporates the external environmental context into the study of corporate acquisitions by examining the performance implications of corporate acquisitions during an environmental jolt that alters the levels of environmental munificence. We posit that compared to the periods before and after an environmental jolt, corporate acquisitions during a jolt would be positively related to firm performance. Furthermore, we suggest that organizational slack would improve firm performance and accentuate the positive relationship between corporate acquisitions and firm performance during an environmental jolt; however, it would have negative impact on firm performance and make the acquisition‐performance relationship more negative before and after a jolt. Using the Asian Economic Crisis as a natural experiment, we found general support for our core arguments based on a sample of firms from Hong Kong and Singapore. Our work demonstrates that firms can capitalize on the opportunities created by the changes in an environmental jolt. Copyright © 2009 John Wiley & Sons, Ltd.

Long-term performance of mergers and acquisitions in ASEAN countries

“…Also, recent studies have shown that the turbulences in the business environment can have a significant impact on bidder's returns (Beltratti & Paladino, 2013;Rao-Nicholson & Salaber, 2014a, 2014b, 2015Wan & Yiu, 2009). Thus, it is interesting to look at the impact of the 2007-2008 financial crisis on the OP of M&As in ASEAN.…”

“…Thus, it is interesting to look at the impact of the 2007-2008 financial crisis on the OP of M&As in ASEAN. Though, typically, a financial crisis can have a negative effect on the company's profits, authors have also recognized good M&A opportunities that present themselves in such an environment which can lead to improvement in profitability (Krugman, 2000;Mody & Negishi, 2000;Wan & Yiu, 2009). For example, during an economic slump, firms are able to acquire targets at a lower price due to adverse economic conditions.…”

“…For example, during an economic slump, firms are able to acquire targets at a lower price due to adverse economic conditions. Wan and Yiu (2009) suggest that a crisis provides acquirers with an altered -more abundant -set of opportunities, and companies that spot these opportunities and aggressively pursue them will perform better. From the perspectives of the resource-based view and dynamic capabilities, M&A during a crisis can be viewed as a way to alter firms' resources and capabilities in order to better adapt to the fast changing environment (Wan & Yiu, 2009).…”

“…Wan and Yiu (2009) suggest that a crisis provides acquirers with an altered -more abundant -set of opportunities, and companies that spot these opportunities and aggressively pursue them will perform better. From the perspectives of the resource-based view and dynamic capabilities, M&A during a crisis can be viewed as a way to alter firms' resources and capabilities in order to better adapt to the fast changing environment (Wan & Yiu, 2009). In the context of the 1997-1999 Asian crisis, the authors find that M&As are positively related to firm performance during the crisis, and negatively related to performance before and after the crisis.…”

Organizational Decline Research Review: Challenges and Issues for a Future Research Agenda

“…Ndofor, Venenvenhoben and Barker (2013) found that turnaround is positively influenced by new products, acquisitions and strategic alliances. Other studies have shown the beneficial role of resources slack to reverse decline situations (Greve, 2011;Wan & Yiu, 2009). Complementary viewpoints can be given regarding threat-rigidity (Staw et al, 1981), the effects of denial (Tedlow, 2012), and inability to develop industry foresight (Prahalad & Hamel, 1990), which are not directly linked to the traditional approaches of growth and success.…”