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The Choice among Acquisitions, Alliances, and Divestitures

This article explores how firms decide to expand or contract their boundaries through acquisitions, alliances, and divestitures, utilizing a multi-theoretical approach. The study examines the determinants of boundary choice and presents empirical results based on data from Fortune 100 firms between 1990 and 2000.

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The Choice among Acquisitions, Alliances, and Divestitures

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  1. The Choice among Acquisitions, Alliances, and Divestitures Author:Villalonga, B. and McGahan, A. Strategic Management Journal, 26 (13): 1183-1208. Presented by Nan Zhang

  2. About the Authors BelénVillalonga • Leonard N. Stern School of Business, NYU • Associate Professor of Management and Organizations • Ph.D., Economic and Management Sciences, 2000 (Universidad Complutense de Madrid) • Ph.D., Management, 2001 (UCLA) Anita M. McGahan • School of Management, Boston University • Visiting Professor of Strategy and Innovation • Ph.D., Business Economics, 1990 (Harvard University)

  3. Overview • Introduction • Determinants of Boundary Choice • Data • Theory, Hypotheses, and Results • Conclusion

  4. Introduction • Earlier empirical studies of boundary choice look at: • Alternative governance structure (transaction focus); • Choices that firms make between acquisitions and alliances (firm focus); • Joint decisions by two or more firms to ally (dyad). • Motivation: Lack of studies about selling (divestitures) vs. buying or making (acquisitions). • Divestitures, alliance and acquisitions can fit into the three groups defined by earlier studies. • Transaction: Divestitures and acquisitions both represent reactions to changes in the transaction costs created by specialized assets. • Firm: Divestitures and alliance are alternative ways to contract boundaries, just as acquisitions and alliances are alternative way to expand boundaries. • Dyad: Divestitures are a way of allocating control of resources between parties. • Objective: Examine how firms choose among acquisitions, alliances, and destitution when deciding to expand or contract boundaries.

  5. Acquisition, Alliance and Divestiture Low Integration High Integration

  6. Determinants of Boundary Choice

  7. Data • 9,276 acquisitions, alliances, and divestitures announced and completed by 86 members of the Fortune 100 between 1990 and 2000 • Data are from the SDC (Joint Ventures and Alliances; Mergers and Acquisitions). • Deal types grouped into three, seven, and nine categories for refined analysis. • Dependent variable: governance form

  8. Variable Summary

  9. Theory, Hypotheses and Results (1)

  10. Theory, Hypotheses and Results (2)

  11. Theory, Hypotheses and Results (3)

  12. Theory, Hypotheses and Results (4)

  13. Theory, Hypotheses and Results (5)

  14. Main Results

  15. Additional ResultsBoundary-expanding and boundary-contracting forms

  16. Conclusion • Supports are founded by findings. • The combined RBV, TCE and internationalization theory is supported. • Agency theory also finds mixed support in the results. • The study provides strong support for organizational learning explanations. • Results imply that a multi-theoretical approach is needed to study firms’ boundary choices • Limitations • Emphasis on the Fortune 100 firms • Validation of proxies (i.e., governance form specialization, recency of same-form experience)? • Future research • Alliances vs. divestitures (boundary-contracting choices) • Exploration of organizational learning explanations

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