STRATEGIC OBJECTIVES, ALIGNMENTS, AND FIRM PERFORMANCE
A dissertation submitted to the
Kent State University Graduate School of Management
in partial fulfillment of the requirements
for the degree of Doctor of Philosophy
by
Kun Chen
January, 2014
Dissertation written by
Kun Chen
B.A., Sichuan University, 2000
M.B.A., Kent State University, 2007
Ph.D., Kent State University, 2014
Approved by
________________________________
Chair, Doctoral Dissertation Committee
________________________________
Members, Doctoral Dissertation Committee
________________________________
________________________________
Accepted by
________________________________
Doctoral Director, Graduate School of
Management
________________________________
Dean, Graduate School of Management
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ACKNOWLEDGEMENTS
I am deeply grateful to all those people who have helped and supported me to finish
this dissertation. First, I would like to thank my advisor, Dr. Michael Hu, and my dissertation
committee members, Dr. Tuo Wang, Dr. Butje Patuwo, and Dr. Dandan Liu, for invaluable
directions, comments, and advice. I would particularly thank Dr. Paul Albanese for his
assistance with the mergers and acquisitions data. Without them, the dissertation would not
have been possible. Second, I would like to thank my friends and colleagues in the doctoral
studies for their suggestions and help. Last, special thanks will give to my wife, Qin and our little
girl, Ella for their encouragement and full support.
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TABLE OF CONTENTS
Chapter 1 - Introduction ............................................................................................................................... 1
Problem Setting and Research Objectives ................................................................................................ 1
Structure of Dissertation........................................................................................................................... 4
Chapter 2 - Literature Review ....................................................................................................................... 5
Overview ................................................................................................................................................... 5
Strategic Objective .................................................................................................................................... 8
Corporate Strategy.................................................................................................................................. 12
Resources and the Capabilities Based View............................................................................................ 15
Mergers and Acquisitions (M&A)............................................................................................................ 25
Study one: Alignment between Strategic Objective and Corporate Strategy ........................................ 29
Study Two: Capability Alignment between Firms ................................................................................... 36
Chapter 3 - Methodology ............................................................................................................................ 40
Overview ................................................................................................................................................. 40
Methodology........................................................................................................................................... 40
Measures................................................................................................................................................. 42
Data Sources ........................................................................................................................................... 50
Chapter 4 - Data Analysis and Results ........................................................................................................ 52
Overview ................................................................................................................................................. 52
Study One: Examining the Effects of Alignment Between Strategic Objective and Corporate Strategy
on Firm Performance .............................................................................................................................. 52
Study Two: Examining the Effects of Capability Alignment on Firm Performance ................................. 64
Chapter 5 - Findings, Implications and Future Research ............................................................................ 73
Overview ................................................................................................................................................. 73
Summary of Findings............................................................................................................................... 73
Managerial Implications.......................................................................................................................... 75
Limitations and Future Research ............................................................................................................ 79
References .................................................................................................................................................. 81
Appendix ..................................................................................................................................................... 90
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LIST OF FIGURES
Figure 1: A Resource-Based Approach to Strategy Analysis ......................................................................... 7
Figure 2: RBV Framework............................................................................................................................ 17
Figure 3: Capabilities of A Firm ................................................................................................................... 22
Figure 4: Capability Alignment .................................................................................................................... 38
Figure 5: Estimation Period ......................................................................................................................... 45
Figure 6: Group Means and Comparison (2-digit SIC) ................................................................................ 59
Figure 7: Group Means and Comparison (3-digit SIC) ................................................................................ 60
Figure 8: Group Means and Comparison (4-digit SIC) ................................................................................ 61
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LIST OF TABLES
Table 1: Diversification Analysis.................................................................................................................. 10
Table 2: Strategic Objectives of a Firm ....................................................................................................... 11
Table 3: Value Creation, Value Appropriation, and Strategic Emphasis ..................................................... 14
Table 4: Alignment between Strategic Objective and Corporate Strategy................................................. 35
Table 5: Operationalization of Key Conceptual Variables........................................................................... 49
Table 6: Distribution of Sample by Year...................................................................................................... 54
Table 7: Distribution of Sample by Industry ............................................................................................... 55
Table 8: Descriptive statistics...................................................................................................................... 56
Table 9: Sample Mean ................................................................................................................................ 57
Table 10: Coefficients from Regression Model ........................................................................................... 63
Table 11: Capability Alignment Group ........................................................................................................ 66
Table 12: Means of Different Capability Alignment Groups ....................................................................... 67
Table 13: Percentage of the Top 25% Firms in Each Capability Alignment Group ..................................... 70
Table 14: Percentage of the Bottom 25% Firms in Each Capability Alignment Group ............................... 71
Table 15: Performance of Capability Alignment Groups ............................................................................ 72
Table 16: Categorization of Groups ............................................................................................................ 72
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Chapter 1 - Introduction
Problem Setting and Research Objectives
Mergers and acquisitions (M&A) are one of the popular and important activities firms
conducted in the business world. According to 2013 M&A report published by WilMerHale,
global M&A transaction value increased to $2.57 trillion in 2012 from $2.16 trillion in 2011. In
United States, the transaction value jumped 22% from $1.09 trillion in 2011 to $1.33 trillion in
2012. However, academics and practitioners are concerned with the fairly high failure rate (i.e.,
60% to 80%) for M&A (Homburg and Bucerius 2005). Factors which impact M&A have been
heavily researched for over three decades, but the mixed findings across different disciplines
demonstrate the need for additional research.
Scholars analyze M&A from different perspectives in different disciplines (Larsson and
Finkelstein 1999; Birkinshaw et al. 2000). Strategic management studies M&A as the entry
model to international markets. It compares the advantages and disadvantages of mergers,
acquisitions, and Greenfield investments and tries to find out the characteristics of firms which
successfully enter the international market (Lee and Lieberman 2010; Harzing 2002; Anand and
Delios 2002). Finance scholars mainly analyze the transaction announcement effect on the
stock market using event study to determine the abnormal stock returns and make profits
(Hackbarth and Morellec 2008; Savor and Lu 2009). Organizational research examines the postcombination integration process and tries to understand how the partner-specific absorptive
capacity reduces the information asymmetry and creates value for shareholders (Zaheer,
Hernandez, and Banerjee 2010). Human resource management focuses on the role of human
resources in M&A (Aguilera and Dencker 2004) and how M&A impact a firm's top management
and employees (Kiessling and Harvey 2006).
In the marketing field, scholars also analyzed M&A. For instance, in the analysis of
integration process, researchers focus on how the integration of marketing resources will
impact firm performance (Homburg and Bucerius 2005). Wiles and colleagues (2012) examine
the effect of brand acquisition on stock returns. But, compared to the proliferation of research
on M&A in other fields, fewer studies in the marketing field have been done. This dissertation
will approach M&A from the marketing perspective and two research questions will be
answered.
The first research question is: How do strategic objective and corporate strategy
influence firm performance, and specifically: What is the effect of alignment between strategic
objective and corporate strategy on M&A performance?
M&A generally include two parties: the acquiring firm and the target firm. Previous
researchers propose the strategic fit between two parties and are concerned with the link
between performance and the strategic attributes of dyads (Cartwright and Schoenberg 2006).
On the one hand, researchers find that the merger of two similar firms leads to better M&A
performance as opposed to the merger of two dissimilar firms (Kaplan and Wiesbach 1992).
Similarity is defined according to their business relatedness. The shared similarity between two
firms such as management style and culture enable them to leverage the resources and
capabilities to increase firm performance (Palich, Cardinal, and Miller 2000). On the other hand,
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researchers also find that the M&A of two different firms have better performance if two firms
can complement each other. Two firms are complementary if they have different resources and
capabilities which can potentially be combined or reconfigured to create value that did not exist
in either firm before the M&A (Kim and Finkelstein 2009).
Research results can be mixed for a number of reasons. It could be a consequence of the
fact that there are many different strategic objectives which firms want to accomplish through
M&A and therefore, a clear analysis cannot be made.
Firms pursue different strategic objectives for their growth, such as distribution channel
building, new product development, and market development. M&A are only one of the
methods a firm can use to acquire resources and thus achieve its objectives. If firms with
different objectives are examined together, the mixed findings are inevitable.
Since previous research ignores the important role of strategic objective on M&A, in this
paper, strategic objectives and the related corporate strategy should be analyzed in order to
answer what factors will influence a firm performance in the context of M&A.
The second research question is related to partner selection, or how acquiring firms
identify their best target firms. Through M&A, firms can acquire critical resources to build
competitive advantages and then implement specific strategies to make profits. It is evident
that there are two steps for M&A transactions. The first step is the selection process. A firm
needs to identify a target firm that it is interested in acquiring. After a firm identifies the target
firm, and the target firm also agrees to the transaction, the second step is the real investment
and/or integration process. In M&A, two firms will redeploy resources, such as tangible assets
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and employees, between them. After firms complete the two steps, they can really pursue their
objectives. In short, a firm needs to select a target firm carefully, and then redeploy the critical
resources between the two firms after the transaction is completed (Bucklin and Sengupta
1993). This paper will focus on the first step and tries to answer: what factors impact target
selection of acquiring firms in M&A?
Structure of Dissertation
To complete my research objective, the dissertation will be structured as follows. Two
studies are proposed to answer the two research questions. In chapter 2, the literature on firm
strategic objective, corporate strategy, and firm capabilities is reviewed. The conceptual
framework which suggested the role of marketing and R&D capabilities on firm performance
(Dutta, Narasimhan, and Rajiv 1999) will be discussed. Based on the literature review and the
conceptual framework, the hypotheses will be developed in study one and two, respectively.
An examination will be made of a) how the alignment between strategic objective and
corporate strategy and b) how the alignment of capabilities (i.e., marketing and R&D
capabilities) between two firms will influence their performance.
In Chapter 3, the methodology, operationalization of the constructs, and data sources
will be discussed. Chapter 4 will present data analysis and the results. Study one examines the
effects of alignment between strategic objective and corporate strategy on firm performance,
and study two accesses the effects of capability alignment on firm performance. The findings
and their implications for managerial practices, limitations, and suggestions for future research
will be discussed in Chapter 5.
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Chapter 2 - Literature Review
Overview
According to Grant (1991), strategy is the match between an organization's internal
resources and skills, and the opportunities and risks created resulted from its external
environment. A firm needs strategy to serve its customers and create wealth for its
shareholders. However, the formulation of strategy is not an easy task for most firms. Grant
(1991) proposes a resource-based approach to help firms formulate their strategies (See Figure
1).
Based on Grant's approach, the process for a firm to formulate a strategy is: 1) identify
the firm's resources and capabilities; 2) understand its strengths and weaknesses relative to
competitors in the marketplace; 3) evaluate potential sustainable competitive advantages
based on the resources and capabilities; and 4) formulate the strategy that can best exploit the
firm's resources and capabilities and take external opportunities. Following this process, firms
can formulate the appropriate strategy on the basis of current resources and capabilities and
thereby increase the firm's profitability.
Another path a firm can follow is to start with the strategic objective then consider the
proper strategy and competitive advantage basis and predict the resource requirements. If
there is a resources gap, the firm must obtain the required resources to build the competitive
advantage and thereby accomplish the strategic objective. Grant's framework is then
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concerned not only with the deployment of existing resources, but also with the development
of the firm's resource base (Grant 1991). The changing market requires firms to constantly
upgrade their resources and capabilities to develop competitive advantages and achieve
strategic objectives.
In sum, Grant's framework emphasizes three components which are critical to a firm's
profitability. First, it is the relationship between resources/capabilities and a firm's competitive
advantages. Second, in order to best exploit the competitive advantages, a firm needs to
formulate strategic objectives then develop and deploy the strategies. Third, to accomplish the
strategic objectives, a firm needs to either develop the critical resources/capabilities internally
or obtain the resources externally, if the existing resources are insufficient for strategies. M&A
are the method that firms can use to obtain resources/capabilities externally.
This chapter will proceed in four major sections. First, the concept of the strategic
objective of a firm will be described. Second, the importance of corporate strategy and its
impact on firm performance will be reviewed. Third, the relationship between firm resources
and firm performance will be discussed. Fourth, the relationship among strategic objective,
corporate strategy, and capabilities in the context of M&A will be summarized.
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Figure 1: A Resource-Based Approach to Strategy Analysis
Resources
Capabilities
Competitive
Advantage
Strategy
Performance
(Grant 1991, p. 115)
7
Strategic Objective
An overriding objective is critical to the successful functioning of a business enterprise
(Boyd and Levy 1966). Firms need to set some strategic objectives to accomplish and find
specific strategies on the basis of competitive advantages to grow (Grant 1991).
One of the popular tools which firms use to formulate the strategic objective is the
Ansoff (1957) model. In this model, firms can set strategic objectives, such as market
penetration, product development, market development, and diversification, based on two
dimensions (i.e., market and product) (See Table 1). Also, researchers can use one dimensions
to classify the strategic objectives. For instance, diversification can be defined according to the
product industry (Kamien and Schwartz 1975) or market (Anand and Singh 1997).
Anand and Singh (1997) state that, when searching for growth opportunities, managers
often face two obvious choices: consolidating their operations within their markets or
diversifying into new markets. This dissertation will follow the proposal of Anand and Singh
(1997) and define strategic objectives using one dimension - market (See Table 2). Firms have
two objectives to achieve: enhancement and diversification. If a firm tries to strength its
existing capabilities and builds competitive advantages within its current market, the strategic
objective is enhancement. If a firm tries to enter into a new market, the objective is
diversification.
While this study is only focusing on the use of the market dimension to define strategic
objectives, it doesn't mean that the effects of product is irrelevant. Since the product is the
8
basis to serve the market, the product dimension is embedded into these two objectives.
Enhancement means that firms serve current or new products to current market.
Diversification shows that firms can enter into a new market with existing products or new
products.
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Table 1: Diversification Analysis
Product
Market
Current
New
Current
Market Penetration
Product Development
New
Market Development
Diversification
(Ansoff 1957, p. 114)
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Table 2: Strategic Objectives of a Firm
Market
Strategic
Objective
Current
New
Enhancement
Diversification
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Corporate Strategy
After firms set their strategic objectives, the next step is to formulate the strategies.
Overall, the concept of Strategy refers to "the dynamics of the firm's relation with its
environment for which the necessary actions are taken to achieve its goals and/or to increase
performance by means of the rational use of resources" (Ronda-Pupo and Guerras-Martin
2012). In practice, strategy exists at multiple levels in an organization - corporate, business, and
functional (Varadarajan, Ayachandran, and White 2001), and can be defined according to
different dimensions.
Uotila and colleagues (2009) propose the balance between exploration and exploitation
activities for a firm in response to changes in its environment. Exploration refers to the
utilization of existing knowledge, and exploitation refers to the development of new
knowledge. In other words, a firm should select the strategy to allocate resources to utilize the
existing knowledge and also develop new knowledge for its growth. The balance will help the
firm to achieve superior performance (March 1991; Uotila et al. 2009). The explorationexploitation framework also proposes a tradeoff between short term and long term
development under different environmental conditions.
Aspara, Hietanen, and Tikkanen (2010) categorize the strategy differently into business
model innovation and replication. They found that firms that have a high strategic emphasis on
business model innovation as well as a high emphasis on replication exhibit a higher profit
growth than firms that do not strategically emphasize either dimension.
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In the marketing field, the impact of marketing strategy on firm performance is
measured by an increase in revenues and customers, and by the creation of market-based
assets such as brand equity and customer satisfaction (Hanssens, Rust, and Srivastava 2009).
According to Mizik and Jacobson (2003), strategy can be defined based on the relative emphasis
on two processes (see Table 3). The first process is value creation which refers to innovating,
producing, and delivering products to the market. Value creation is more R&D-driven and longterm oriented. The second process, called value appropriation, refers to extracting profits from
the marketplace. Value appropriation is more marketing driven and short-term oriented. The
authors use strategic emphasis to represent the tradeoff between value creation and value
appropriation since firms usually have limited resources for these two processes. They find that,
if a firm increases its emphasis on value appropriation relative to value creation, the stock
market reacts favorably.
In this paper, the use of the term corporate strategy will follow the proposal made by
Mizik and Jacobson (2003) that has two levels: strategic emphasis on value creation (i.e., R&D
emphasis) and strategic emphasis on value appropriation (i.e., marketing emphasis).
The implementation of corporate strategy needs resources and capabilities (Grant
1991). Therefore, next section will discuss the relationship between resources/capabilities and
firm performance.
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Table 3: Value Creation, Value Appropriation, and Strategic Emphasis
Value
Appropriation
Value Creation
Strategic Emphasis
extracting profits
innovating, producing, and delivering products
to the market
tradeoff between value appropriation and
value creation
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Resources and the Capabilities Based View
Resources-Based View
Introduced by Barney (1991), the resources-based view (RBV) points out the relationship
between the resources and the competitive advantages of a firm. In his article, Barney proposes
that a firm's resources and capabilities can be viewed as bundles of tangible and intangible
assets including a firm's management skills, its organizational processes and routines, and the
information and knowledge it controls. Sustained competitive advantages are derived from the
resources and capabilities that a firm controls (Barney 1991).
The resource-based view makes two assumptions (Barney 1991). First, firms within an
industry (or group) are heterogeneous with respect to the resources that they control. Second,
these resources are not perfectly mobile across firms, and thus heterogeneity can be long
lasting. Therefore, if a firm's resources are valuable, rare, imperfectly imitable, and strategically
non-substitutable, these resources may generate sustained competitive advantages for the firm
(See Figure 2). According to RBV, possessing valuable resources allows firms to exploit
opportunities and/or neutralize threats. But if the same resources are possessed by a large
number of firms, then each firm has the capability to exploit opportunities. Resources need to
be rare in order to develop competitive advantages. Imperfectly imitable resources are those
valuable and rare resources which cannot easily be obtained by other firms. Strategically nonsubstitutable resources are those for which other firms cannot find equivalent substitutes.
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Overall, firms can be viewed as collections of resources, and those resources allow firms
to generate and sustain competitive advantages (Wernerfelt 1984; Barney 1991; Barney,
Wright, and Ketchen 2001). RBV emphasizes this relationship between resources and
competitive advantages.
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Figure 2: RBV Framework
Firm Resource
Heterogeneity
Value
Rareness
Imperfect Imitability
Firm Resource
Immobility
Sustained
Competitive
Advantage
Substitutability
(Barney 1991, P. 112)
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Capabilities and Firm Performance
RBV emphasizes the role of resources on a firm's competitive advantages. Furthermore,
research in the marketing field provides empirical support for two specific firm resources:
marketing capability and R&D capability.
Marketing Capability
Day (1994) highlights the importance of marketing capability. In Day's view, an
organization with strong marketing capability has two distinctive features: market sensing and
customer linking capabilities. Market sensing means a firm has the ability to sense events and
trends in their market ahead of their competitors. Customer linking refers to creating and
managing customer relationships. Strong marketing capability means that a firm exhibits
superiority in identifying customers' needs and in understanding the factors that influence
consumer choice behavior (Dutta, Narasimhan, and Rajiv 1999). These capabilities can help the
firm realize superior performance by satisfying customers better than its competitors (Day
1994). Moreover, strong marketing capability can increase the firm's operating efficiency by
reducing the firm's working capital needs and increase shareholder's wealth (Rao and
Bharadwaj 2008).
Day (1994) particularly proposes that market orientation is one of the marketing
capabilities. Market orientation was conceptualized from behavioral and cultural perspectives
(Homburg and Pflesser 2000). Both perspectives emphasize that firms should learn about
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customers and markets in order to continuously sense and act correspondingly (Kohli and
Jaworski 1990; Narver and Slater 1990). Market orientation is a potential resource for
comparative advantage (Hunt and Morgan 1995), and has a positive effect on business
performance in both the short and the long run (Matsuno and Mentzer 2000, Kumar et al.,
2011). Market orientation affects a firm's performance through innovation, customer loyalty
and product quality (Kirca, Jayachandran, and Bearden 2005). More specifically, market
orientation is positively related to new product performance by facilitating creativity of new
products and related marketing programs (Im and Workman 2004). Therefore, marketing
capability is critical to firms.
R&D Capability
Another important capability of firms is R&D. Previous literature reviews show that
innovation can be divided into three components based on the timing of introduction: idea,
new product development, and commercialization of the product(Chaney, Devinney, and Winer
1991).
Using meta-analysis methodology, Rubera and Kirca (2012) review the relationship
between a firm's innovativeness and its performance outcomes. Firm innovativeness refers to a
firm's receptivity and inclination to adopt new ideas that lead to the development and launch
of new products. Rubera and Kirca found that innovativeness indirectly affects a firm's value
through its effects on market position and financial position. Commercialization can increase
demand, increase profit market, and lower customer acquisition and retention costs (Bayus,
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Erickson, and Jacobson 2003), and therefore increase long-term financial performance and firm
value (Pauwels et al., 2004).
Innovation can also be categorized based on two common dimensions which underlie
most definition of the construct: 1) newness of technology - the extent to which the product
incorporates a new technology, and 2) customer-need fulfillment - the extent to which it fulfills
key customer needs better than existing products do (Chandy and Tellis 1998). There are four
different innovations based on these two dimensions. Incremental innovations involve
relatively minor changes in technology and provide relatively low incremental customer
benefits. Market breakthroughs are based on core technology that is similar to existing
products but provide substantially higher customer benefits. Technological breakthroughs
adopt a substantially different technology than existing products but do not provide superior
customer benefits. Radical innovations involve substantially new technology and provide
substantially greater customer benefits, relative to existing products. Researchers find both
breakthrough innovation and incremental innovation are positively associated with firm
performance which is measured by profit (Sorescu and Spanjol 2008). Overall, strong R&D
capability leads to short product life-cycles and a high rate of new product introduction (Dutta,
Narasimhan, and Rajiv 1999), and is critical to firms as well.
Marketing and R&D Capabilities
Both marketing and R&D capabilities are critical to firms. But neither marketing nor R&D
can serve customers well alone. The effect of marketing capability on firm performance is
strengthened when marketing capability is combined and integrated with other capabilities
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such as innovativeness (Menguc and Auh 2006). Similarly, R&D and operations capabilities,
along with interactions with marketing capability, are important determinants of firm
performance (Dutta, Narasimhan, and Rajiv 1999) (See Figure 3). Dutta and colleagues find that
the most important determinant of a firm's performance is the interaction between marketing
and R&D capabilities. In other words, the synergy between marketing and R&D occurs to fulfill
customers' needs and leads to better firm performance. Firms need to not only come up with
innovations constantly but also commercialize these innovations into the kinds of products that
capture consumer needs and preferences. In short, R&D capability and marketing capability
together not only lift stock returns of firms (Srinivasan et al., 2009), but also lower firms'
systematic risk (McAlister, Srinivasan, and Kim 2007).
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Figure 3: Capabilities of A Firm
Resources
Marketing Capability
Sales
R&D Capability
Quality-Adjusted
Technological Output
Operations Capability
Cost of Production
(Dutta, Narasimhan, and Rajiv 1999, p. 553)
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Dynamic Capabilities View
RBV states that resources - valuable, rare, inimitable and non-substitutable - make it
possible for firms to maintain a competitive advantage (Barney 1991). However, most firms
face a constantly changing business environment and their competitive advantages cannot last
long. In other words, previous findings were based on a static environment and ignored the
changing environment.
Teece, Pisano and Shuen (1997) introduce the dynamic capabilities view to address this
gap which posits that a firm can leverage the performance impact of existing resources through
resource configuration, complementarity, and integration. The management of firms can
deploy and redeploy resources in response to changes in the business environment (Eisenhardt
and Martin 2000). When a firm faces either high or low technological turbulence, marketing
and R&D capabilities still have the most effects on firm performance (Song et al. 2005).
Particularly, when in a high-turbulence environment, the effect of marketing capabilities are
lower; but the effect is strengthened when it is bundled together with innovativeness (Menguc
and Auh 2006).
Finally, the meta-analysis conducted by Krasnikov and Jayachandran (2008) summarizes
the relationship between firm capabilities and firm performance: 1) marketing, R&D, and
operations capabilities are positively related to firm performance; 2) given the previous
statement, marketing capabilities still have a stronger impact on firm performance than do R&D
and operations capabilities.
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In summary, RBV and dynamic capabilities view confirm the critical role of resources,
especially marketing and R&D capabilities, on competitive advantages and firm performance.
Next, M&A, the methods through which firms obtain critical resources, will be discussed.
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Mergers and Acquisitions (M&A)
M&A
M&A refer to "all interfirm linkages that lead to the integration of two entities which
includes the merging of two companies on an equal basis as well as acquisitions in which one
firm plays a dominant role and obtains majority ownership over another" (Yang, Lin, and Lin
2010).
Through M&A, a firm's executives have complete control over decision making, and they
can eliminate redundant resources easily. They can also use any surplus resources to generate
economies of scale, or they can cut costs by eliminating those resources (Dyer, Kale, and Singh
2004).
Transaction Cost Economics and M&A
According to Shelanski and Klein (1995), different governance structures are related to
different transaction costs. Transaction costs come from market frictions such as asymmetric
information in the business environment (Penrose 1959; Chi 1994). Without the transaction
costs, contracting can dominate the governance structures (Mahoney 1992). Since there is
market frictions, a firm can stay in business only if it can do better than others in the market by
weakening market frictions. The transaction costs economics proposes the foundation of
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existence to the firm (Mahoney 2001). Also, the transaction cost economics supports why firms
will select different governance structure (such as M&A) to reduce their costs.
The transaction cost economics and the resource-based view are complementary theory
(Mahoney 2001). The resource-based view seeks to delineate the set of market frictions that
would lead to firm growth and sustainable advantages while the transaction cost economics
seeks to delineate the set of market frictions that explain the existence of the firm. In other
words, RBV emphasizes the revenue side and transaction cost economics focuses on the cost
side.
When firms make decisions to obtain resources, they need to choose the approach
which can effectively balance the internal and external resources and protect their interest
(Shelanski and Klein 1995). If the cost to reduce the opportunistic behavior of another party is
very high, the two firms may integrate their businesses into one firm to minimize continuous
transaction costs via M&A. If, on the other hand, the integration costs are higher than the
anticipated benefits to be gained, firms may consider other alternatives instead of M&A
(Williamson 1991; Hoffmann and Schaper-Rinkel 2001).
Motivation to M&A
Due to the critical role of resources to firms, firms need to obtain the key resources in
order to pursue their strategic objective. Firms can develop critical capabilities internally, or
acquire resources externally.
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First, firms can develop resources through internal development by relying on its own
resource endowments rather than using external resources from other firms, although the firm
may or may not pursue resources independently (Yang, Lin, and Lin 2010). For example,
researchers find that market-based organizational learning has been identified as an important
source of sustainable competitive advantage. Firms without such learning skills can identify the
key capabilities of other firms who own competitive advantages in the marketplace. Then, they
can benchmark these capabilities through investment for learning, and build their own
competitive advantages (Vorhies and Morgan 2005).
Other options for obtaining resources include buying important resources through
factor market or hiring talented employees in order to create unique capabilities. Firms can also
work with other parties such as consumers, suppliers, and competitors to generate competitive
advantages.
But a firm's resources have two common attributes. One is that the resources owned by
one firm are limited. At any point in time, a firm usually doesn’t have all the resources that it
needs to implement its strategy. The other attribute is that resources are hard to obtain directly
from the factor market especially if there is a need to obtain them within a short period of time.
In R&D-intensive industries, technological know-how cannot be bought directly even if
employees with such knowhow are enticed away from a competitor because it is difficult to
evaluate an individual's knowledge and transmit to others (Vanhaverbeke, Duysters, and
Noorderhaven 2002). Evaluation of know-how may lead to the risk of attenuation because
technological know-how may be leaked to others during the evaluation process. In addition, it
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is very difficult to directly transmit the know-how between firms because technological knowhow may be tacit or embedded in other knowledge. Also, firms develop routines in limited
business scope over time, which constrain their ability to recombine existing resources and the
learning capabilities (Wiklund and Shepherd 2009).
Second, because it is often difficult to generate resources internally, a firm may need to
rely on external sources to obtain resources. M&A are one of the methods a firm uses to access
the external resources. M&A can bridge the resources gap between a firm's current resources
and required those by strategic objectives (Hoffmann and Schaper-Rinkel 2001). Resource
acquisition is one of the motivations for firms to conduct M&A.
Scholars also find that M&A activities can be started from the managerial level. Three
motives for managers to recommend M&A are synergy-seeking, managerialism and hubris
(Seth, Song, and Pettit 2002). Synergy motive states that managers want to build the economic
value of the firm. Managerialism suggests that managers promote the acquisition for their own
utilities at the cost of the firm at large because, most of time, their benefits will increase as the
firm size increases. The hubris motive suggests that managers make mistakes in evaluating a
target firm. Seth and colleagues find that M&A can create value for shareholders if managers
want to seek synergy from the transactions but destroy value if it is driven by managerialism.
However, the issue of a manager's perspective is the subjective categorization of motives and
lacks of objectivity.
Walker (2000) divides the motivations for M&A into five objectives such as economies
of scale, exploitation of asymmetric information, mitigation of agency problems, market power,
28
and tax credits utilization. But these objectives are not at the same level. Some are strategic
objectives and some are merely tasks that a firm needs to complete. Furthermore, literature
provides mixed findings about what objectives can generate great value for the firm.
Researchers analyze how firms use M&A to expand their boundaries (Villalonga and
Mcgahan 2005). When firms want to make the most efficient utilization of sustaining
economies of scale and scope, and when firms have less strategic uncertainty and lower need
for strategic flexibility, they often attempt to acquire firms in same or different industries
(Hoffmann and Schaper-Rinkel 2001). Through M&A activities, the strategic objectives that
firms want to accomplish can be exposed. Walter and Barney (1990) have shown that M&A are
means for firms to expand current product lines and markets, and also to enter into new
business. The business boundaries of M&A transaction naturally show the objective, not
subjective, measure to strategic objectives of a firm.
Study one: Alignment between Strategic Objective and Corporate Strategy
The literature review shows that firms can obtain critical resources through M&A and
also M&A transactions exposed their strategic objectives.
Mizik and Jacobson (2003) find that capital market favors the one-way movement from
value creation to value appropriation. However, both value creation and value appropriation
are important processes to achieving sustained competitive advantage for firms. Firms should
create value first and then begin to extract profits. Two processes are highly correlated and
29
therefore, the arguments may not be completed. The strategic objective will be injected to
their proposal and the interplay of strategic objective and corporate strategy will be discussed.
Previous research investigates the importance of strategic consistency to organizational
survival (Lamberg et al., 2009). Firms which are not in line with their past behaviors may lead to
an imbalance between capabilities and real actions to compete in the market, and thus
resulting a negative performance. In the context of M&A, the objectives that firms want to
achieve should be consistent with their existing strategy. The hypothesis to explore here is that
there is alignment between strategic objective and corporate strategy.
Diversification and R&D Emphasis
Diversification allows firms to leverage the capabilities needed to serve alternative
markets. The advantages of diversification can arise from two resources: market power
advantages and synergy (Palich, Cardinal, and Miller 2000).
Compared to the benefits, there are also coordination costs associated with
diversification (Zhou 2011). Coordination costs come from the interdependencies between
existing and new business. When a firm diversifies, it needs to address with three elements of
coordination: communication, information processing, and joint decision making (Marschak and
Radner 1972).
Firms can benefit from diversification if the synergy benefit is higher than the
coordination cost (Zhou 2011; Helfat and Eisenhardt 2004). However, in the short run, firms
usually will face a high coordination cost. For example, when a firm wants to merge with a
30
target firm which operates in a different market, there are coordination costs associated with
crossing different industries and the one-time transaction cost (Zhou 2011).
Additionally, when two firms are different because they conduct business in different
marketplaces, there are increased coordination costs. Two firms may be different in
management style. Management style includes the factors such as the management group's
attitude towards risk, their decision-making approach, and preferred control and
communication patterns (Covin and Slevin 1988). Different management style increases the
coordination costs between two firms and thus has a negative impact on merged performance
(Datta 1991). Finally the dissimilarity in industry make it difficult to redeploy resources between
two firms (Prabhu, Chandy, and Krishnan 2005) and increase the coordination costs as well. For
instance, one important resource is the intangible assets such as know-how. The dissimilarity
between two firms constrains the redeployment process and thus leads to inherent inefficiency
and low firm performance (Seth, Song, and Pettit 2002).
The analysis of diversification through M&A shows that firms need time to deploy
resources to create value in the new market before extracting profits. Strategic emphasis on
value creation is more R&D driven and means that firms need to allocate more resources for
innovation. Since firms are new to the market, they need time to learn customers and enhance
existing products or provide new products to serve them. R&D emphasis is consistent with
diversification objective in this aspect.
Strategic emphasis on value appropriation is more marketing driven. For a new market,
marketing activities are necessary to understand consumers and stimulate the sales, but, often
31
these are not the top priorities for firms initially. Firms should emphasize R&D first and provide
the solid basis for marketing activities if they expect to earn profits.
In sum, diversification objective is aligned to R&D emphasis. In contrast, if a firm wants
to diversify but the corporate strategy has a marketing emphasis, the firm may not have the
foundation necessary to generate profits.
Enhancement and Marketing Emphasis
When a firm wants to achieve the strategic objective of enhancement, the firm should
try to strength its position within the current market. A firm can make investments to expand
the production capabilities and reduce its unit cost of product. Firms can invest to build the
distribution channel or outsource to a third party in order to improve the product delivering
speed and post-sale services. Firms also can extend their current product line and provide more
products to current consumers. In short, firms can increase the output of existing resources,
including tangibles assets such as equipments and manufacturing facilities, and intangible
assets such as brands, marketing, and R&D capabilities, and provide better products to
customers relative to their competitors. Through achieving an enhancement objective, a firm
improves its performance and increases the shareholder value (Anand and Singh 1997).
Two firms considering M&A in the same industry should have common structural
patterns and interlinked structures within the R&D units. The common structure serves as a
basis for realizing innovative resource combinations and streamlining the innovation process
(Grimpe 2007). Product innovation provides a solid basis to serve the customers and help the
realization of an enhancement objective. The firms should also have more overlapping
32
resources in the same market. The new firm that results from M&A can achieve the economies
of scale by disposition and rationalization of redundant assets, use of more specialized or costeffective technologies, and spread of the fixed costs over a larger sales volume (Anand and
Singh 1997). Also M&A can reduce the level of product market competition because of the
decreased number of competitors in the market (Fulghieri and Sevilir 2011). Through M&A,
firms can reduce their manufacturing, operations costs etc., and finally reduce the total costs
(Panzar and Willig 1981).
M&A can also enhance product innovation (Prabhu, Chandy, and Ellis 2005). Knowledge
is field specific in nature, and each firm possesses some knowledge in that field. Thus, the
merged firm should have deeper knowledge in that field compared to either of the pre-merged
firms. The depth of knowledge will produce more innovations. Similarity is the extent of overlap
in the fields of knowledge of two firms (Prabhu, Chandy, and Ellis 2005). If there is sufficient
similarity, the acquiring firm will be able to easily understand the knowledge possessed by the
target firm, increase the absorption capability, and lead to more innovations (Mowery, Oxley,
and Silverman 1996).
Along the spectrum of the development of firms, there are different constraints within
firms which create barriers for firm efficiency improvement. The resource redeployment
between two firms following M&A can effectively relax or break the institutional and
organizational constraints. For example, the redeployment will reconfigure the product mix by
either strengthening the attractive products and/or reducing the presence of unattractive
33
products (Krishnan, Joshi, and Krishnan 2004). Firms can ultimately increase their revenue in
the marketplace.
Marketing emphasis means that firms invest more resources to extract profit from the
current market. Marketing expenditures can strengthen brand names leading to loyal
customers who create the stable cash flows for a firm thereby reducing the risks and
uncertainty that firms face (Keller 2003). Also, strong brand names facilitate the brand
extension and lead to better firm performance. Therefore, marketing emphasis is aligned to
enhancement objective by facilitating the whole process.
Based on the above discussion, the following hypothesis can be proposed (see Table 4
for summary):
H1: Firms with alignment between strategic emphasis and strategic objective have
higher performance.
H1a: For the enhancement objective, firms with strategic emphasis on value
appropriation have higher performance than those which focus on value creation.
H1b: For the diversification objective, firms with strategic emphasis on value creation
have higher performance than those which focus on value appropriation.
34
Table 4: Alignment between Strategic Objective and Corporate Strategy
Strategic Objective
Strategy
Enhancement Diversification
Marketing Emphasis
Aligned
R&D Emphasis
Aligned
35
Study Two: Capability Alignment between Firms
In the strategic management literature, two distinct causal mechanisms, resource
picking and capability building, have been proposed to describe how firms create value
(Makadok 2001). If firms decide to acquire external resources through M&A, the target
selection process is related to resource picking. The redeployment after M&A is part of
capability building. Further, a firm can build competitive advantages through use of the
capability building mechanism only after the firm has acquired the expected resources
(Makadok 2001).
Researchers propose the positive impact of resource redeployment following M&A on
firm performance. Capron, Dussauge, and Mitchell (1998) show that firms frequently redeploy
resources, especially R&D, manufacturing, and marketing resources, to and from an acquired
firm, and they also redeploy managerial and financial resources to an acquired firm. For
marketing resources, the redeployment of brands, sales forces, and general marketing
management expertise significantly influences the revenue and the overall firm performance
(Capron and Hulland 1999). Furthermore, the redeployment speed of marketing resources has
a positive impact on market-related performance, and thus has positive impacts on a firm's
financial performance. The successful post-acquisition R&D integration also has a positive
impact on a firm's earnings and market share (Grimpe 2007).
The importance of the redeployment process emphasizes the critical role of target
selection. Without the appropriate resources from the target firm, the acquiring firm cannot
36
build unique resources through the integration process. Selecting the right target firm is the
prerequisite for successful M&A.
The dominant logic in M&A holds that similarity between two firms is the primary
source of strategic fit that improves acquisition performance. But research also supports that
complementarity, where two different firms combine their resources which results in value that
two firms cannot create before the combination, leads to better firm performance (Harrison et
al 1991; Helfat and Peteraf 2003; Kim and Finkelstein 2009).
The findings of Dutta et al. (1999) support the critical role of marketing and R&D
capabilities in firm performance. But the findings are confined to a single firm. In the
dissertation of Trainor (2009), the author extends Dutta and his colleagues' model to check the
effects of capacity fit on knowledge creation and knowledge output of the merged firm. He
finds that, in M&A, the fit between the high marketing capability of one firm and the high R&D
of another firm demonstrates the highest post acquisition knowledge creation. The created
knowledge is the basis for innovations and is linked to better firm performance. Using the
above mentioned findings, the model will be extended to examine how the alignment of two
firms' capabilities will influence the firm performance for different objectives (See Figure 4).
37
Figure 4: Capability Alignment
Firm One
Firm Two




Marketing Capability
R&D Capability
Capability
Alignment
Firm Performance
38
Marketing Capability
R&D Capability
Capability Alignment and Firm Performance
Previous literature shows how marketing and R&D capabilities are critical to firm
performance. But how capability alignment between two firms leads to higher performance is
still not clear. For example, when one firm has strong capabilities, and acquires another firm
with strong marketing and R&D capabilities in the same industry, the absorptive capacity of
acquiring firm is very high, but similarities between the two firms likely do not provide enough
differences to enrich R&D capabilities of the acquiring firm (Makri, Hitt, and Lane 2010). In
contrast, if one firm has strong marketing but weak R&D, and another firm has weak marketing
but strong R&D, the two firms can benefit from the complementarity (Harrison et al 2001).
Though the exact combination of capabilities between two firms is not certain, acquiring
firms should look for different capabilities for their objectives. Therefore, the proposal is that
there should be capability alignment between the acquiring firm and the target firm. And
empirical results will be used to have a better understanding about the capability alignment in
M&A transactions.
The following is proposed:
H2: Firms with capability alignment should have better performance relative to firms
without capability alignment.
39
Chapter 3 - Methodology
Overview
This chapter first describes the methodology which is used in this paper: event study.
Abnormal stock returns will be used to measure the firm performance in study one and study
two. Study one examines the effect of alignment between corporate strategy and strategic
objective on an acquiring firm's performance. Study two examines the capability fit between
two firms but still from the acquiring firm's perspective.
Finally, the operationalization of dependent and independent variables will be
discussed. Lastly, data sources and the sample will be introduced.
Methodology
Through the above analysis, it is expected that strategic objective and corporate
strategy will impact firm performance in the context of M&A. The objective also influences
partner selection since different capabilities are required for different objectives. All those
decisions will impact a firm's future costs and revenues. According to efficient market
hypothesis (EMH) proposed by Fama (1970), the price of a security is the present value of the
expected future cash flows of a firm. The price, at any given time, will reflect all the available
information about the firm's current and future profit potential. If there is information which
may impact the future cash flows of a firm, the security price will change when the information
goes public. Therefore, an event-study methodology will be used in this paper which assesses
40
the magnitude of the effect of an unanticipated event on the value of a firm. More specifically,
the abnormal stock return, which is the change in a stock price adjusted with market
movement, will reflect the impact of the event on a firm's value.
41
Measures
Dependent Variable: Firm Performance
In Grant's approach (1991), strategy building on competitive advantages leads to firm
profitability. According to EMH, a stock price will reflect a firm's current and future profit
potential. When information regarding M&A transaction is available in the market, the stock
price will change to reflect the effect of that event on a firm's future profitability. Simply put,
the abnormal stock return, can be used to measure the effect of the announcement.
Since there is an exact announcement day for M&A, a one-day event period will be used
as the window change to be measured (McWilliams and Siegel 1997). Also because there is
possibility of information leakage, or the announcement may be made after stock markets have
closed, two days before event day and two days after will be used as well.
According to Fama and French's (1993) multi-factor asset pricing model with
momentum factor (Carhart 1997), the abnormal stock return will be calculated through
following steps:
First, the rate of return on the share price of firm i on day t is expressed as
(1)
-
(
,
where,
is the rate of return on the share price of firm i on day t,
42
is the risk-free rate on day t,
is the average market rate of return on day t,
is the difference in returns between small and large firms on day t,
is the difference in returns between high-and low-book-to-market ratio firms,
is the Carhart(1997) momentum factor,
and
is error term, with E (ε it ) = 0.
From equation (1), the OLS parameter estimates, ,
by the regression of
on
,
,
,
, and
,
,and
, can be obtained
, over an estimation
period (T) preceding the event. For this study, a time period of 200 days ending ten days prior
to the event day will be used to estimate the expected returns (See Figure 5).
Second, based on the OLS parameter estimates and the assumption that the linear
relationship established in equation will be constant during the event window, the expected
stock returns (E(
(2)
E(
)) can be calculated:
)=
(
Third, abnormal stock returns (AR) can be calculated by equation (3),
(3)
AR it =
- E(
)
Where, AR it is the abnormal stock return of firm i on day t.
43
Fourth, AR it over the duration of the event window is aggregated to compute the
cumulative abnormal return (CAR).
(4)
Where
refer to the event window.
44
Figure 5: Estimation Period
Estimation Period
Event
45
Independent Variables
Strategic Objective
Different firms may have different motivations to conduct M&A activities as was
discussed in Chapter 2. Hoskisson and colleagues (1993) summarize the measure of
diversification strategy and provide reasonably strong support for the construct validity of the
objective diversification strategy measure. This dissertation will use SIC codes to measure the
strategic objectives since SIC codes provide the standard and unbiased industry information for
each firm, and also since SIC codes are used to measure diversification in marketing field (Cui
2013).
Two-digits SIC codes will be used to figure out the strategic objectives. If the acquiring
firm has the same first two-digit SIC codes as does the target firm, the strategic objective of the
acquiring firm is enhancement. If the acquiring firm has two different first digit SIC codes than
does the target firm, the strategic objective is diversification. Also, three- and four-digit SIC
codes will be used in the data analysis to compare their difference resulting from subjective
selection among digit choice.
Corporate Strategy
Corporate strategy is measured by strategic emphasis proposed by Mizik and Jacobson
(2003) (see Equation 5). A large amount of information about firms is lost if only accounting
data is used to measure corporate strategy. However, at the same time, the measure of
46
corporate strategy has been simplified. Also this type of measurement provides the objective
measure for corporate strategy instead of the subjective measure. The function is:
(5)
S.E. it = (Advertising it - R&D it ) / Total Assets it
Where,
S.E. it is the strategic emphasis of firm i at year t,
Advertising it is the advertising expense of firm i at year t,
R&D it is the R&D expenses of firm i at year t,
and total assets it is the total assets of firm i at year t.
When a firm has made an announcement about the M&A transaction, the accounting
data from the previous year will be collected to calculate its strategic emphasis. If S.E. it is larger
than zero, the strategic emphasis is S.E. in value appropriation, i.e., marketing emphasis. If S.E. it
is less than zero, the strategic emphasis is S.E. in value creation, i.e., R&D emphasis.
Marketing Capability
The measure of marketing capability will follow the input-output framework introduced
by Dutta, Narasimhan and Rajiv (1999).
A firm's marketing capability can be measured by the ratio of output/input (see
Equation 6). The ultimate output of marketing activities is sales. In order to create sales, firms
need the input of several parts: first input is the firm's sales, general and administrative
expenses (SGA) which are viewed as a proxy for expenses like market research and sales effort
47
(Dutta et al. 1999). The second input is the firm's intangible assets (INTANG) which reflect a
firm’s success in building relationships and brand equity (Slotegraaf et al., 2003). The third input
is its account receivables (RECE) which reflect a firm’s relationship with customers (Dutta el al.
1999). And lastly, is the firm's existing customer base which is measured by the moving average
of sales from prior year (MSALE) to reduce the variability of customers. The marketing
capability is measured using the yearly data from the year prior to the transaction
announcement. The industry average can be calculated by averaging the number of all the
public firms in that industry.
The marketing capability is categorized to two levels: high or low. If the firm has higher
capability relative to the industry average in the same year, the capability is high. If it is lower
than industry average, the capability is low.
The equation is as follows:
(6)
Marketing Capability t = Sales t / (SGA t + INTANG t + RECE t + MSALE t)
R&D Capability
A firm's R&D capability is measured by R&D intensity: R&D / Sales. In general, higher
input for R&D will lead to stronger R&D capabilities. Sales are used to remove the scale of
different firms. Based on industry averages for the same year, a firm's R&D capability can be
labeled as high or low.
Table 5 shows the operationalization of key conceptual variables.
48
Table 5: Operationalization of Key Conceptual Variables
Key Conceptual Variables
Measure
Data Source
Strategic Objective
Enhancement: same first 2-digit SIC
Diversification: different first 2digit SIC
Thomson ONE Banker
Merger & Acquisition
database
Strategic Emphasis
(Advertising it - R&D it )/ Total
Assets it
If S.E. >0: Emphasis on Value
Appropriation;
If S.E. < 0: Emphasis on Value
Creation.
COMPUSTAT
Abnormal Stock Return
Four Factors Model
CRSP
Kenneth French's Web Site
Marketing Capability
Sales it / (Marketing Expense it +
Intangible Assets it + Account
Receivables it + Moving Average of
Sales it)
COMPUSTAT
R&D Capability
R&D Expense it / Total Assets it
COMPUSTAT
49
Data Sources
There is no single database which contains data for all the variables. A dataset must be
constructed according to dependent and independent variables using different data sources.
The first data source is the SDC platinum database from Thomson Financial. This
database provides information on new issues, M&A, syndicated loans, private equity, project
finance, poison pills, and more. The second data source is the Center for Research in Security
Prices (CRSP) database. This database provides the stock price, stock return, dividend,
outstanding shares of firms and market related information. The third data source is
COMPUSTAT. From COMPUSTAT, annual data such as marketing expenditures, R&D
expenditures, total assets, and sales can be extracted. The fourth data source are the news
providers such as The Wall Street Journal, PR Newswire, and Dow Jones which provide news
about M&A announcements. And the fifth data source is the website of Dr. Kenneth French
(http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html), which provides
the Fama and French factors, Treasury bond rates, and the momentum factor for abnormal
stock return calculations. Risk free rate is measured by Treasury bond rates (one month).
Sample
Based on SDC database, all the M&A announcements from 1970 to 2012 were
extracted. Then, the following two criteria were used to filter the annoucements: 1) Two parties
in the M&A announcement were publicly listed in the New York Stock Exchange, American
Stock Exchange, or NASDAQ since those firms are required to report their accounting data
50
periodically; 2) the M&A value was larger than $1 million otherwise the effects of
announcement is minimal.
After the M&A transaction announcements were identified, each announcement in the
sample was matched with COMPUSTAT to extract accounting data such as advertising expenses
and R&D expenses, and then this dataset was matched with the CRSP database to pull the stock
return data. The whole process resulted in a total of 482 announcements.
If the third criteria, which the acquiring firm is seeking to own more than 50 percent of
the target and own less than 50 percent prior to the acquisition, was added, the sample has 395
announcements. The related results were reported in Appendix from table 4 to table 8.
51
Chapter 4 - Data Analysis and Results
Overview
In this chapter, the results of the two studies are presented. Study one reports the
results of the alignment effect of strategic objective and corporate strategy on firm
performance. Study two reports the results of capability alignment between two parties in the
M&A transaction. After the results are presented, the interpretation of the results is presented.
Descriptive Statistics
The description of sample deals can be found in Table 6 by year and Table 7 for SIC code
division. Descriptive statistics of independent and dependent variables are reported in Table 8.
Study One: Examining the Effects of Alignment Between Strategic Objective and Corporate
Strategy on Firm Performance
Study one examined the effects of the alignment between strategic objective and
corporate strategy on M&A performance. Two methods were used to achieve this goal. First,
the group means were compared using ANOVA. And second one used regression to check the
possible linear relationship.
The first step was to check the sample mean. From table 9, the abnormal stock return of
the whole sample is -0.91% which is significant using one sample t test. The results are
consistent with the findings in previous research. The M&A announcement did have a negative
impact on the acquiring firms' performance. Most of time, investors thought that the acquiring
52
firms overpaid for the target firms. Moreover, the results provide support for the event-study
methodology. In another words, event study is appropriate for this research project since the
effects from M&A announcements can be reflected in the changes of stock price.
53
Table 6: Distribution of Sample by Year
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Total
Number of
Deals
1
2
3
8
7
8
6
20
22
14
8
9
8
6
14
34
23
22
23
18
24
21
16
16
12
29
26
29
19
19
13
2
482
54
Table 7: Distribution of Sample by Industry
SIC Code Division
Agriculture
Mining
Manufacturing
Transportation & pub. utilities
Wholesale trade
Retail trade
Finance, insurance, & real
estate
Services
Total
Number of Acquiring Firms
1
297
7
5
42
Number of Target Firms
6
1
257
7
13
40
6
2
124
482
156
482
55
Table 8: Descriptive statistics
Key Variables
Abnormal Stock
Return
Acquiring Firm
Target Firm
Day -2
Day -1
Day 0
Day +1
Day +2
Marketing
Capability
R&D
Capability
Strategic
Emphasis
Marketing
Capability
R&D
Capability
56
N
Mean
482
482
482
482
482
-0.07%
0.02%
-0.91%
0.01%
0.00%
Standard
Deviation
0.030
0.032
0.056
0.053
0.034
482
0.61
0.157
482
0.08
0.069
482
-0.05
0.074
482
0.56
0.195
482
0.13
0.164
Table 9: Sample Mean
Windows
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
N
482
482
482
482
482
482
482
482
Mean
-0.07%
0.02%
-0.91%***
0.01%
0.00%
-0.90%**
-0.89%**
-0.88%**
SD
0.030
0.032
0.056
0.053
0.034
0.079
0.066
0.088
Min
-24.04%
-13.32%
-44.08%
-34.74%
-10.97%
-38.43%
-44.44%
-38.78%
*** P-value < 0.001; ** P-value < 0.05; * P-value < 0.10.
57
Max
12.60%
27.08%
36.97%
25.77%
19.48%
52.58%
32.65%
46.67%
For the second step, all the subjects in the sample were divided into two groups based
on strategic objective and corporate strategy (refer to the following table).
Corporate
Strategy
Marketing Emphasis
R&D Emphasis
Strategic Objective
Enhancement
Diversification
Cell 1
Cell 2
Cell 3
Cell 4
Group one consists of firms whose strategic objective is aligned to corporate strategy
(Cell 1 plus Cell 4 in the above table). More specifically, firms which want to achieve the
enhancement objective and have a marketing emphasis, and firms which want to achieve the
diversification objective and have a R&D emphasis, belong to this group. Similarly, group two
includes firms which either have an enhancement objective but a R&D emphasis, or a
diversification objective but a marketing emphasis (Cell 2 plus Cell 3 in the above table).
Figure 6 reports the following information (see Table 1 in Appendix for more data). First,
for group 1, the mean is 0.81% on day 1. One sample t test shows that mean is significant.
Second, for group 2, the mean is -0.69% on day 1 which is still significant at 0.10 level. But at
0.05 level, statistically the group mean is not different from zero. Third, using ANOVA, F value is
9.63 which is significant at .05 level. In another word, two groups do have different means.
Also, based on the three-digit SIC codes and the four-digit SIC codes respectively, the
sample is divided into two groups as well. The comparison results are reported in Figure 7 and
Figure 8 (more data in Table 2 and Table 3 in Appendix). Using three-digit SIC code, the mean of
group one is 0.69% and that of group two is -0.67%. F value is 7.95 which shows that two
58
groups have different means. Using four-digit SIC code, F value is 4.84 and two groups still have
different means.
In summary, whether using either 2, 3, or 4 digits SIC codes, the results are consistent:
the group with alignment outperforms the group without alignment.
Figure 6: Group Means and Comparison (2-digit SIC)
*** P-value < 0.001; ** P-value < 0.05; * P-value < 0.10.
59
Figure 7: Group Means and Comparison (3-digit SIC)
*** P-value < 0.001; ** P-value < 0.05; * P-value < 0.10.
60
Figure 8: Group Means and Comparison (4-digit SIC)
*** P-value < 0.001; ** P-value < 0.05; * P-value < 0.10.
61
Since mean comparison only focuses on group mean, the variability of group subjects is
ignored. Therefore, the third step is to use simple regression to test their relationship. Since on
day 1, the group mean comparison results supported our hypotheses, the rest data analysis
only focused on day 1 for consistency.
Regression function:
(7)
Abnormal Stock Return = f (Strategic Emphasis )
For the enhancement group, the positive relationship between abnormal stock return
and strategic emphasis was expected since, when measuring strategic emphasis, a higher value
means that firms put more emphasis on marketing activities. In contrast, for the diversification
group, the negative relationship between abnormal stock return and strategic emphasis was
expected. The negative value of strategic emphasis means that firms put more emphasis on
R&D activities instead of marketing.
Table 10 reports the results of the regression models. As expected, for the enhancement
group, the coefficient of the independent variable is 0.174 which is positive and significant. The
adjusted R square is 4.83%. For the diversification group, the coefficient of independent
variables is -0.08 which is significant at 0.1 level. The adjusted R square is 1.02%. A simple
regression model supports our hypotheses of H1a and H1b.
Based on the above mean comparisons and regression models, it can be concluded that
the hypotheses of H1, H1a, and H1b are supported.
62
Table 10: Coefficients from Regression Model
Windows: Day +1
Intercept
Strategic Emphasis
Enhancement Diversification
0.009*
-0.002
(.004)
(.004)
.174**
-0.08*
(.061)
(.045)
N
274
208
Adjusted R2
4.83%
1.02%
*** P-value < 0.001; ** P-value < 0.05; * P-value < 0.10.
63
Study Two: Examining the Effects of Capability Alignment on Firm Performance
Conceptually, it is known that firms need different resources to achieve different
objectives. When firms want to enhance their market position with the current market, firms
need resources/capabilities which are different from their diversification objectives.
However, the literature review shows mixed results for the combination of
resources/capabilities between firms. In study two, the empirical results will provide some
preliminary information for future research.
First, according to the literature review, marketing capability and R&D capability are two
critical capabilities for firm performance. According to the level of marketing and R&D
capabilities, the following 16 capability alignment groups can be constructed (see Table 11),
where high (low) means that firms have stronger (weaker) capabilities relative to their industry
average during the same period of time.
Second, the overall pattern of the sample is reported. Zhao (2009) proposed that
technological innovation is a motivating factor in a firm's acquisition. The author finds that
firms engaging in acquisition activities are less innovative and, therefore, benefit from the
acquisition. Firms that possess strong R&D capabilities do not have an incentive to acquire
(Hennart and Park 1993). From Table 12, most of the M&A transactions were launched by firms
with low R&D capabilities. High R&D firms only account for 13.9% of total firms in the sample.
The results confirmed previous findings.
64
Table 12 also shows the average abnormal stock returns for each alignment group. The
averages show that some capability alignments perform well for the enhancement objective
and some perform well for diversification.
Next, capability alignment will be analyzes in more depth.
All the firms in the sample are sorted according to their abnormal stock returns. 121
firms are listed in the top 25% and 121 firms are listed in the bottom 25%. In Table 13 and Table
14, the top 25% firms and the bottom 25% firms are counted based on capability alignment
group. Percentage is the result of which the number of firms in the top 25% divided by total
number of firms in each capability alignment group. Logically, for each group, if the percentage
of the top 25% is higher than 0.25, the group performs well relative to the sample average. For
the percentage of the bottom 25%, if the percentage is higher than 0.25, the group performs
worse relative to the sample average.
65
Table 11: Capability Alignment Group
Capability
Alignment Group
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Acquiring Firm
R&D
Marketing
High
High
High
High
High
High
High
High
High
Low
High
Low
High
Low
High
Low
Low
High
Low
High
Low
High
Low
High
Low
Low
Low
Low
Low
Low
Low
Low
Target Firm
R&D
Marketing
High
High
High
Low
Low
High
Low
Low
High
High
High
Low
Low
High
Low
Low
High
High
High
Low
Low
High
Low
Low
High
High
High
Low
Low
High
Low
Low
66
Table 12: Means of Different Capability Alignment Groups
Capability
Alignment
Group
Total
Enhancement
Diversification
N
Mean
N
Mean
N
Mean
1
21
0.55%
13
2.54%
8
-2.69%
2
6
2.33%
3
1.43%
3
3.22%
3
13
-1.21%
2
-2.36%
11
-1.00%
4
9
1.78%
2
5.04%
7
0.85%
5
2
6.66%
2
6.66%
0
-
6
6
-4.07%
5
-5.18%
1
1.46%
7
2
4.92%
0
-
2
4.92%
8
8
0.67%
3
-0.99%
5
1.67%
9
27
-0.74%
11
-1.22%
16
-0.42%
10
31
-1.06%
16
-1.72%
15
-0.37%
11
141
0.05%
85
0.39%
56
-0.45%
12
80
0.46%
46
0.90%
34
-0.13%
13
9
-5.19%
5
-10.09%
4
0.94%
14
19
-0.91%
14
-1.64%
5
1.13%
15
51
0.58%
27
-0.71%
24
2.03%
16
Total
57
482
0.32%
0.01%
40
274
0.25%
-0.08%
17
208
0.46%
0.13%
67
Third, the group performance can be summarized on the basis of Table 13 and Table 14
(see Table 15). However, Table 15 doesn't clearly show the pattern and thus the results can be
subset again to Table 16 which reports the group performance under different objectives.
In Table 16, some capability alignment groups have mixed performance, such as groups
1, 2, 4, and 16 for different objectives. However, there are some interesting results as well.
First, group 11 has the top performance for enhancement but the bottom performance for
diversification. Group 11 represents acquiring firms and target firms which both have low R&D
but high marketing capabilities. Although two firms have weak R&D capabilities, the capital
market may expect that the two firms can utilize their strong marketing capability to exploit the
market and increase their sales in the same industry.
Second, group 5 shows high performance for the enhancement objective. Acquiring
firms which have strong R&D but low marketing capabilities do benefit from a target firm which
has strong R&D and marketing capabilities. High R&D in acquiring firms means that the firms
have a good understanding about the market and customers, and they can smoothly absorb
input from the target firms. Also, strong marketing capability from the target firm can
complement the weakness of acquiring firm in marketing. Interaction between R&D and
marketing can really enhance their position in the market.
Third, groups 3,6,10,13,14 report low performance for the enhancement objective. The
common features of these firms are that the acquiring firms have low R&D capability but the
target firms have strong R&D capability. It is evident that the low R&D of the acquiring firms
68
cannot facilitate the resources deployment between the two firms and thus hinder the
enhancement objective.
Fourth, group 7 shows that, to diversify, if the target firm has a low R&D capability but a
high marketing capability, and the acquiring firm has a strong R&D capability, the high
marketing capability from the target firm can facilitate the R&D of the acquiring firm and,
therefore, provide the appropriate products to achieve the strategic objective.
Last, groups 9 and 12 show that, if the acquiring firm does not have a strong R&D
capability, it is difficult for it to diversify to a new market.
69
Table 13: Percentage of the Top 25% Firms in Each Capability Alignment Group
Enhancement
Group
N
Top25% Percentage
1
13
5
2
3
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Total
2
2
2
5
3
11
16
85
46
5
14
27
40
274
1
2
1
1
28
12
3
8
13
76
0.38
0.67
0.50
1.00
0.33
0.09
0.33
0.26
0.21
0.30
0.33
0.28
Diversification
N
Top25% Percentage
8
3
0.38
3
2
0.67
11
7
1
2
0.09
0.29
0.50
0.20
0.19
0.20
0.14
0.18
0.20
0.33
0.35
0.22
1
2
5
16
15
56
34
4
5
24
17
208
1
1
3
3
8
6
1
8
6
45
70
Table 14: Percentage of the Bottom 25% Firms in Each Capability Alignment Group
Enhancement
Group
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Total
N
Diversification
Bottom25% Percentage
13
3
2
2
2
5
3
3
0.23
1.00
0.60
3
11
16
85
46
5
14
27
40
274
2
2
6
19
9
3
6
7
12
74
0.67
0.18
0.38
0.22
0.20
0.60
0.43
0.26
0.30
0.27
2
N
Bottom25% Percentage
8
3
11
7
2
1
2
2
1
2
5
16
15
56
34
4
5
24
17
208
1
5
3
13
9
1
2
6
47
71
0.25
0.33
0.18
0.29
0.20
0.31
0.20
0.23
0.26
0.20
0.08
0.35
0.23
Table 15: Performance of Capability Alignment Groups
Top Groups
Bottom Groups
Enhancement
Group 1,2,4,5,8,11,15,16
Group 3,6,8,10,13,14,16
Diversification
Group 1,2,4,7,15,16
Group 1,2,4,9,11,12,16
Table 16: Categorization of Groups
Categorization
E+, D+, DE+, EE+, D+
E+,DE+ only
E- only
D+ only
D- only
E+,E-,D+,D-
Group
1,2,4
8
15
11
5
3,6,10,13,14
7
9,12
16
E+:Enhancement objective and top performance
E-: Enhancement objective and bottom performance
D+: Diversification objective and top performance
D-: Diversification objective and bottom performance
72
Chapter 5 - Findings, Implications and Future Research
Overview
Researchers have called for analyzing the link between marketing actions and firm
value. Any marketing action should lead to an impact on firm value but through revenues and
customers (Hanssens, Rust, and Srivastava 2009). The paper answered this call by putting
marketing actions in the context of M&A and addressing how marketing strategy influences
firm value.
There are two purposes for this research project. The first one is to find out how
strategic objective and corporate strategy will impact a firm's performance. The second one is
to analyze how strategic objective will impact partner selection in M&A. The findings from
study one and study two suggest that alignment between strategic objective and corporate
strategy does impact firm performance in M&A, and for different objectives, acquiring firms
should select target firms to obtain different resources.
This chapter will discuss the findings from study one and study two and related
managerial implications. Also, the limitation of this paper and future research will be presented.
Summary of Findings
73
Previous researchers find that acquiring firms usually overpay for the target firms in
M&A and therefore capital market reacts negatively. However, if the M&A transactions are
analyzed in depth, some transactions are different.
Study one
Study one examined the alignment effects of strategic objective and corporate strategy
only from the acquiring firms' perspective in M&A. In particular, how strategic objective
interplays with strategic emphasis on marketing or R&D impacts firm performance. Using two
methods, ANOVA and regression, the alignment effects are confirmed.
When firms want to achieve an enhancement objective through M&A, the capital
market reacts favorably if the firm's strategy is a marketing emphasis. When firms want to
achieve a diversification objective through M&A, the capital market prefers firms which have an
R&D emphasis in strategy. For other combinations between objective and strategy, the market
reacts negatively.
In short, the objectives that firms want to achieve through M&A should be consistent
with the current marketing strategy. The alignment drives the firm's performance and leads to
an increased firm value in M&A.
Study two
Study two analyzes the partner selection to achieve different strategic objectives. Since
previous researchers prove how critical marketing capability and R&D capability is to a firm's
performance, the capability alignment between two firms in M&A should also be critical.
74
To summarize, there are several key findings for partner selection.
For an enhancement objective, 1) if a firm has a strong R&D capability but a low
marketing capability, a strong R&D and marketing from the target firm does help; 2) if a firm
has a low R&D capability, the strong R&D capability acquired from the target firms cannot really
benefit; 3) if both firms have a weak R&D capability, a strong marketing capability can
effectively help the acquiring firm enhance its market position and achieve its strategic
objective.
For a diversification objective, firms should have a strong R&D capability first. The
strong marketing capability of the target firm can help the acquiring firm understand the target
market quickly and, therefore, serve the new market. If the acquiring firm does not have a
strong R&D capability, it cannot actually benefit from the strong R&D of the target firms.
In summary, R&D capability is critical. To enhance the market position, the acquiring
firm should have strong a R&D capability in the industry to really obtain the resources from the
target firm. To diversify, a strong R&D capability will ensure that the acquiring firm can
promptly understand the target market and launch the appropriate products.
For those firms which have a low R&D capability, they cannot acquire a strong R&D
capability through M&A, at least, capital market does not believe that they can, and it reacts
accordingly. But marketing capability can help those firms to enhance their market positions.
Managerial Implications
75
Building competitive advantages is not an easy job. Grant (1991) proposes that firms can
build a competitive advantage on the basis of critical resources, and firms should formulate the
strategy through which firms can utilize competitive advantages and increase profits.
For most M&A transactions, investors believe that the acquiring firms are overpaid. The
stock price of the acquiring firm usually goes down in response to this belief. Following Grant's
model and in the context of M&A, however, this dissertation found the characteristics which
differentiate an acquiring firm from others in the capital market: alignment between strategic
objective and corporate strategy, and capability alignment with the target firm. The direct
effects of the findings are that investors can benefit from those firms since they have positive
abnormal stock returns.
Investors should find out the strategic emphasis of the acquiring firm first. Although
value appropriation and value creation are both important processes, firms typically have a
relative emphasis during a specific period of time. This relative emphasis impacts the
organization in two aspects. One is in resources allocation. Due to the relative emphasis and
limited resources, firms decide how to allocate resources across different diversions within the
whole organization. Firms with a marketing emphasis put more resources and management
focus on marketing activities instead of R&D. The other aspect is the impact on cooperation and
collaboration among different business units. If a firm has a R&D emphasis, working with R&D
department should be prioritized relative to other tasks since firms rely on R&D to build the
solid basis to serve customers and compete in the market.
76
Second, investors can recognize the strategic objective of a acquiring firm from the M&A
transaction announcement, either enhancement or diversification. M&A announcements
usually disclose the objective that the firm wants to achieve through the transactions.
Third, investors can check if there is alignment between the strategic objective and the
corporate strategy. If the strategic objective is aligned with the corporate strategy, firms can
keep all the activities to the same direction. Managers can motivate the whole firm to continue
moving without too much confusion and distractions. However, if the strategic objective is
different from the strategic emphasis, all the resources within the company need to be
reorganized and the management team will need to communicate with the business units to
solve any possible problems. But the resulting inertia from current strategic emphasis will
hinder the accomplishment of different goals and create unnecessary barriers.
Two firms in the same industry, through M&A, can become an enhanced firm in some
ways after the merger. The merged firm can lower the competition level in the current market
because the firm faces one fewer competitors in the market. Firms can also lower their cost by
removing the duplicated functions that previously existed in two firms, or the firm can take
advantage of economies of scale and scope. Firms can also speed the delivery of products to
customers and increase the turnover. All of these can help enhance the firm's position in the
market and lead to higher sales. A marketing emphasis can facilitate this objective as was
demonstrated in chapter 2. When entering the new market, firms should emphasize R&D first
because firms should understand the customers and serve them appropriate, either existing
products or new, products.
77
The second characteristic of an acquiring firm is having a capability alignment with the
target firm. In another words, the acquiring firm can obtain the required capability and
resources which build its competitive advantages in the market, and the acquiring firm finally
can utilize its competitive advantages through its specific strategy.
Empirical results support the conclusion that firms need different resources to achieve
different objectives. If firms want to diversify, investors favor an acquiring firm which has a
strong R&D capability and has a target firm with a strong marketing capability. If firms want to
enhance their existing positions, investors react positively to 1) acquiring firms which have a
strong R&D capability already but a weak marketing capability, and have a target firm that can
bring strong marketing position to the merged firm, 2) both acquiring firms and target firms
that have a weak R&D and strong marketing capability.
Since the majority of M&A transactions are launched by acquiring firms with a low R&D
capability, investors actually show their emphasis on marketing capabilities for enhancement
objective.
Although these findings are coming from M&A field, the results can be generalized.
M&A are just methods that firms use to acquire resources and show the strategic objective of
the firm. The abnormal stock returns reflect the expectation of the market regarding the firm's
future by responding to the proposed M&A. Capital market analyzes the event and predicts the
future of the newly merged firm. Their reactions confirm the alignment effects and support the
belief in the importance of alignment for firm performance. If firms have alignment between
their objective and corporate strategies, these firms should have a better performance relative
78
to those without alignment. Also, firms should have a critical R&D capability and marketing
capability for their strategy. Without enough capabilities, especially in marketing and R&D,
firms can't achieve good performance.
Limitations and Future Research
First, capability building needs two processes. First, is the need for resource picking and
second is the actual resource integration and development. This research project only examines
the first process, resource picking. An event study was used to test the estimation of investors
regarding a firm's future performance after M&A. However, the actual results of M&A relies on
the resource integration process after the resource picking. This study does not consider the
integration process. For future research, should examine the resource integration process and
its long term effects.
Second, the event study used only examined the short term effect of announcements
based on the assumption of efficient market hypothesis. There are differing views regarding the
effectiveness of the efficient market hypothesis. The market sometimes is not as efficient as
was once thought.
Third, SIC codes were used to measure the strategic objective in this dissertation. SIC
codes provide objectivity of measurement. Although this usage is well accepted in the
literature, researchers also suggest that the subjective measure of strategic objectives is a valid
tool. The subjective measure of objectives can be used in future research and compared with
this dissertation to discover the impacts only from measurements.
79
Fourth, M&A have two parties. This dissertation only examines the alignment from the
perspective of the acquiring firm. The market performance of the target firm has not been
tested. Although the abnormal stock returns of the target firms are generally positive, whether
an acquiring firm with alignments can lead to better performance of target firms is not clear.
The performance of target firms should be tested after taking into consideration the
characteristics of the acquiring firms. Also, the portfolio return, return of both acquiring and
target firms, should be explored as well.
80
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Appendix
Table 1: Group Means and Comparison (2-digit SIC)
Group 1: Aligned
Windows
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
Group 2: Unaligned
N
Mean
SD
N
Mean
SD
225
225
225
225
225
225
225
225
-0.05%
0.12%
-0.87%**
0.81%**
0.20%
-0.06%
-0.75%*
0.06%
0.027
0.033
0.043
0.046
0.031
0.063
0.060
0.074
257
257
257
257
257
257
257
257
-0.10%
-0.06%
-0.95%**
-0.69%*
-0.17%
-1.63%**
-1.01%**
-1.70%**
0.033
0.032
0.065
0.058
0.036
0.090
0.071
0.097
90
Difference = Aligned - Unaligned
F
Difference
sig
Comparison
value
1.49%
9.63
0.002
1.57%
4.83 0.0284
1.76%
4.86
0.028
(1,2)
Table 2: Group Means and Comparison (3-digit SIC)
Group 1: Aligned
Windows
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
Group 2: Unaligned
N
Mean
SD
N
Mean
SD
241
241
241
241
241
241
241
241
-0.07%
0.04%
-0.87%**
0.69%**
0.25%
-0.19%
-0.83%**
-0.15%
0.027
0.033
0.042
0.047
0.031
0.062
0.058
0.074
241
241
241
241
241
241
241
241
-0.08%
0.00%
-0.94%**
-0.67%*
-0.24%
-1.61%**
-0.94%**
-1.61%**
0.033
0.032
0.067
0.058
0.036
0.092
0.073
0.099
91
Difference = Aligned - Unaligned
F
Difference
sig
Comparison
value
1.35%
7.95
0.005
1.42%
3.97 0.047
(1,2)
Table 3: Group Means and Comparison (4-digit SIC)
Group 1: Aligned
Windows
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
Group 2: Unaligned
N
Mean
SD
N
Mean
SD
299
299
299
299
299
299
299
299
-0.06%
-0.03%
-0.98%**
0.43%
0.17%
-0.55%
-1.01%**
-0.58%
0.027
0.031
0.051
0.050
0.035
0.069
0.064
0.080
183
183
183
183
183
183
183
183
-0.10%
0.11%
-0.80%*
-0.67%
-0.27%
-1.47%**
-0.69%
-1.36%*
0.035
0.034
0.062
0.058
0.032
0.092
0.068
0.099
92
Difference = Aligned - Unaligned
F
Difference
sig Comparison
value
1.09%
4.84
0.028
(1,2)
Table 4: Sample Mean
N=395
Window
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
N
395
395
395
395
395
395
395
395
Mean
-0.04%
-0.01%
-1.19%***
-0.14%
-0.03%
-1.33%**
-1.21%***
-1.34%**
SD
0.029
0.031
0.060
0.057
0.036
0.084
0.069
0.092
93
Min
-17.89%
-13.32%
-44.08%
-34.74%
-10.97%
-38.43%
-44.44%
-38.78%
Max
12.60%
27.08%
36.97%
25.77%
19.48%
52.58%
32.65%
46.67%
Table 5: Group Means and Comparison (2-digit SIC)
N=395
Group 1: Aligned
Windows
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
Group 0: Unaligned
N
Mean
SD
N
Mean
SD
174
174
174
174
174
174
174
174
-0.14%
0.13%
-1.23%***
0.75%**
0.18%
-0.48%
-1.10%**
-0.35%
0.028
0.035
0.048
0.049
0.034
0.069
0.065
0.080
221
221
221
221
221
221
221
221
0.03%
-0.12%
-1.16%**
-0.84%**
-0.19%
-2.00%**
-1.29%**
-2.12%**
0.031
0.028
0.068
0.061
0.038
0.094
0.072
0.100
94
Difference = Aligned - Unaligned
F
Difference
sig
Comparison
value
1.59%
7.77
0.006
(1,0)
Table 6: Group Means and Comparison (3-digit SIC)
N=395
Group 1: Aligned
Windows
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
Group 0: Unaligned
N
Mean
SD
N
Mean
SD
186
186
186
186
186
186
186
186
-0.19%
0.02%
-1.21%**
0.66%*
0.22%
-0.55%
-1.19%**
-0.52%
0.029
0.035
0.047
0.051
0.034
0.068
0.063
0.080
209
209
209
209
209
209
209
209
0.09%
-0.04%
-1.18%**
-0.85%**
-0.26%
-2.03%**
-1.22%**
-2.07%**
0.030
0.028
0.069
0.061
0.038
0.096
0.073
0.101
95
Difference = Aligned - Unaligned
F
Difference
sig
Comparison
value
1.51%
7.13
0.0079
(1,0)
Table 7: Group Means and Comparison (4-digit SIC)
N=395
Group 1: Aligned
Windows
-2
-1
0
1
2
0, +1
-1, 0
-1, 0, +1
Group 0: Unaligned
N
Mean
SD
N
Mean
SD
241
241
241
241
241
241
241
241
-0.12%
-0.02%
-1.22%**
0.34%
0.13%
-0.88%
-1.24%**
-0.90%
0.028
0.032
0.056
0.053
0.038
0.075
0.069
0.085
154
154
154
154
154
154
154
154
0.07%
0.01%
-1.16%*
-0.88%*
-0.28%
-2.05%**
-1.15%**
-2.04%**
0.032
0.029
0.065
0.062
0.034
0.097
0.068
0.102
96
Difference = Aligned - Unaligned
F
Difference
sig
Comparison
value
1.22%
4.41
0.0365
(1,0)
Table 8: Coefficients from Regression Model
N=395
Windows: Day +1
Enhancement Diversification
Intercept
.009*
(.005)
-0.02
(.005)
Strategic Emphasis
.203***
(.05)
-.004
(.05)
N
235
160
Adjusted R2
6.03
0
97