Relatedness and Acquirer Performance

Lien, Lasse B.; Klein, Peter G.

doi:10.1016/s1479-361x(06)05001-0

Cited by 17 publications

(10 citation statements)

References 34 publications

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“…We can also use SB measures to understand what relatedness "does" by looking at its effects on performance, growth, entry mode, financing, organizational choice, merger-and-acquisition performance, and the like. For example, in a related project, we find a significant positive relationship between relatedness and acquirer performance when relatedness is measured using the SB approach but no relationship when SIC-distance measures were used (Lien & Klein, 2006). We have focused here on marginal diversification moves (i.e., entry and exit) rather than on the characteristics of entire portfolios as is more common in the literature.…”

Section: Discussionmentioning

confidence: 99%

Using Competition to Measure Relatedness

Lien

Klein

2008

Journal of Management

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The conventional approach to measuring interindustry relatedness uses the Standard Industrial Classification (SIC) system to capture the “distance” between industries. Although relatedness measures based on SIC codes (or equivalent classifications) are readily available and easy to compute, they do not screen effectively for the conditions under which related diversification creates value. This article constructs an alternative, survivor-based measure of interindustry relatedness and compares it to similar measures based on distances between SIC codes. The authors find that survivor-based measures consistently outperform SIC-based measures in predicting firms' decisions to enter new markets, even when herding tendencies and motives related to mutual forbearance are taken into account.

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Section: Discussionmentioning

confidence: 99%

Using Competition to Measure Relatedness

Lien

Klein

2008

Journal of Management

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“…The related hypothesis in transaction cost approach claims that multi-business firms holding portfolios of similar related business might obtain efficiency advantages unavailable to non-diversified firms or firms with unrelated portfolios. According to Lien and Klein (2006), economic sense of relatedness implies that resources in one industry are substitutes for, or complements to, resources in another industry. Whether the firm successfully integrates new business sectors depends on the comparative costs and benefits of contracting, not on the underlying production technology.…”

Section: Literature Discussionmentioning

confidence: 99%

Diversification Strategies and Firm Performance: A Sample Selection Approach

Santarelli

Tran

2013

SSRN Journal

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Abstract:This paper is based upon the assumption that firm profitability is determined by its degree of diversification which in turn is strongly related to the antecedent decision to carry out diversification activities. This calls for an empirical approach that permits the joint analysis of the three interrelated and consecutive stages of the overall diversification process: diversification decision, degree of diversification, and outcome of diversification. We apply parametric and semiparametric approaches to control for sample selection and endogeneity of diversification decision in both static and dynamic models. After controlling for industry fixed-effects, empirical evidence from firm-level data shows that diversification has a curvilinear effect on profitability: it improves firms' profit up to a point, after which a further increase in diversification is associated with declining performance. This implies that firms should consider optimal levels of product diversification when they expand product offerings beyond their core business. Other worth-noting findings include: (i) factors stimulating firms to diversify do not necessarily encourage them to extend their diversification strategy; (ii) firms which are endowed with highly skilled human capital are likely to successfully exploit diversification as an engine of growth; (iii) while industry performance does not influence profitability of firms, it impacts their diversification decision and degree.

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“…Diversification beyond a certain degree raises internal governance and administration costs to the point that performance suffers (Jones and Hill, ). Thus, many of the most significant failures of diversification can be traced to the failure of achieving sufficient relatedness between business sectors, which implies that the resources in one industry are substitutes for, or complements to, the resources in another industry (Lien and Klein, ).…”

Section: Literature Surveymentioning

confidence: 99%

Diversification strategies and firm performance in Vietnam

Santarelli

Tran

2015

Econ Transit

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This paper is based upon the assumption that a firm's profitability is determined by its degree of diversification which is, in turn, strongly related to the antecedent decision to carry out diversification activities. This calls for an empirical approach that permits the joint analysis of the three interrelated and consecutive stages of the overall diversification process: diversification decision, degree of diversification and outcome of diversification. We apply parametric and semi-parametric approaches to control for sample selection and the endogeneity of the diversification decision in both static and dynamic models. For the analysis, we use the census dataset on the whole firm population in Vietnam, as a representative of transition countries. After controlling for industry fixed-effects, the empirical evidence from the firm-level data shows that diversification has a curvilinear effect on profitability: it improves firms' profit up to a point, after which a further increase in diversification is associated with declining performance. This implies that firms should consider optimal levels of product diversification when they expand their product offerings beyond their core business. Other noteworthy findings include the following: (i) the factors that stimulate firms to diversify do not necessarily encourage them to extend their diversification strategy; (ii) firms that are endowed with highly technological resources and innovation investment are likely to successfully exploit diversification as an engine of growth; and (iii) while industry performance does not have a strong influence on the profitability of firms, it impacts their diversification decision as well as the degree of diversification.JEL classifications: L21, L25, C14, C23.

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Relatedness and Acquirer Performance

Cited by 17 publications

References 34 publications

Using Competition to Measure Relatedness

Using Competition to Measure Relatedness

Diversification Strategies and Firm Performance: A Sample Selection Approach

Diversification strategies and firm performance in Vietnam

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