Measuring theoretically complex constructs: the case of acquisition performance

Abstract

Researchers face numerous challenges when measuring complex theoretical constructs. This article focuses on the tension between the benefits of measurement precision and the benefits of generalizability in the context of the acquisition performance construct. Achieving precision tends to lead to measurement proliferation, while achieving generalizability calls for measurement convergence. The authors perform qualitative and quantitative analyses to determine how the literature has dealt with this tension.They conclude that acquisition performance is a theoretically complex construct comprised of relatively unrelated dimensions and that there is often a misalignment between theory and measurement — resulting in missed opportunities to capture the benefits of precision or the benefits of generalizability. Based on their analyses, the authors’ develop a framework to help future acquisition researchers manage the tension between precision and generalizability. The approach is recommended for use by researchers studying other theoretically complex constructs.

Green M&A Deals and Bidders’ Value Creation: The Role of Sustainability in Post-Acquisition Performance

“…More in detail, there seems to be a stronger impact of green deals on the two years post-acquisition ROA, both in terms of coefficient magnitude and statistical significance, with respect to the three years post-acquisition ROA (0.8676 significant at 5% and 0.7994 significant at 10% respectively). These findings are consistent with the previous analysis (see Table 6) and with prior studies in post-acquisition performance, highlighting that green investments can foster value creation for acquirers and that acquisition benefits are incorporated with a temporal lag of about two or three years (Cording et al, 2010;Leger & Quach, 2009;Zollo & Singh, 2004) from the deal date. Source: authors' elaboration.…”

“…The most popular measurements of post-deal firm performance are: (1) market measures, using the event study method to compute the bidders', or targets', stock market abnormal returns for a short-term analysis and (2) accounting measures, mainly the return on assets (ROA) or the return on equity (ROE), for a mid or long-term perspective (Cording et al, 2010;Zollo & Meier, 2008). These methodologies have two different underlying assumptions: (1) the time frame used (few days for the event study method and some years for the accounting performance measures) and (2) the nature of the available information (public in the case of an event study and both public and private in the case of accounting measures of performance), as pointed out by Cording et al (2010). Following the same authors, the measurement of post-acquisition performance is a "theoretically complex construct comprised of relatively unrelated dimensions" and this could be the reason why a wide misalignment among academics and practitioners concerning theory, measurement and findings in this field exists.…”

“…According to Cording et al (2010), among the hundreds of explanatory variables (218) used by researchers in this field, the ones most often used include the bidder and the deal characteristics. The first set of control variables in this paper comprise the acquirer's key financial characteristics: (1) firm size and (2) leverage.…”

“…We employ a measure of target sustainability to explore the impact it has on the bidder's performance post-acquisition, following Bettinazzi & Zollo (2017), who find support for the positive relationship between stakeholder orientation and acquisition success, and Lin & Wei (2006), who highlight the importance of business ethics issues in order to measure the acquisition's performance. Researchers agree that ROA is one of the most reliable proxies of profitability in this field of research (Cording et al, 2010;King et al, 2004;Papadakis & Thanos, 2010;Zollo & Meier, 2008).…”

How do high-technology firms create value in international M&A? Integration, autonomy and cross-border contingencies

“…Following previous research, we used acquiring firms' Tobin's q three years after the announcement of the acquisition deal to measure their cross-border acquisition performance (Anand & Singh, 1997;Cording, Christmann, & Weigelt, 2010;Oler, Harrison, & Allen, 2008;Sirmon & Hitt, 2009) and value creation (Shimizu et al, 2004). Tobin's q, which is the ratio between a firm's market value and the replacement value of its assets, has been widely used to calculate firms' long-term market value (Carpenter, 2002) and three years is a commonly utilized period of time to recognize strategic effects (Bruton, Ahlstrom, & Wan, 2003).…”