Acquirer Organization Capital and Acquisition Performance

Using a large and comprehensive sample of U.S. M&A transaction, we uncover an important source of value creation in M&A activity—acquirer organization capital.  High organization-capital acquirers achieve significantly better operating performance improvement post acquisition than do low organization-capital acquirers, and significantly outperform low organization capital acquirers in deal announcement returns and post-acquisition long-term stock returns.  Moreover, high organization-capital firms, relative to low organization-capital firms, more often achieve better operating performance improvement and greater shareholder wealth creation when they take the M&A route to expand than when they otherwise would achieve with the alternative internal-development route.  Finally, we find that high-organization capital acquirers are more likely to conduct diversifying M&A transactions than are low organization-capital acquirers, which implies that organization capital may be applied/transferred across industries for value creation.  Overall, our empirical evidence strongly suggests that acquirer organization capital is an important determinant of takeover outcomes.

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