Acquirer-to-target relatedness and target country unfamiliarity in acquisitions

• Published in: Management decision 2017-06, Vol.55 (5), p.892-914
• Main Authors: Galavotti, Ilaria, Depperu, Donatella, Cerrato, Daniele
• Format: Article
• Language: English
• ISSN: 0025-1747; 1758-6070
• DOI: 10.1108/MD-12-2015-0607

Purpose The purpose of this paper is to analyze corporate scope decisions in acquisitions with a focus on the relationship between target country unfamiliarity and acquirer-to-target relatedness and on the moderating effects played by product diversification and international experience. Design/methodology/approach Using a dataset of 689 acquisitions completed in the period 2007-2013 by acquirers located in 60 countries, this paper utilizes an ordered logistic regression analysis. Findings With greater target country unfamiliarity, acquirers are encouraged to pursue greater acquirer-to-target relatedness. This finding suggests that acquirers tend to seek a balance between product and international diversification to reduce the sources of uncertainty in their acquisition moves. While past international experience strengthens this relationship, diversification experience has a negative moderating effect and hence encourages acquirers to reduce relatedness at increasing market unfamiliarity. Originality/value The originality of this paper is twofold. First, the authors extend the traditional internationalization-diversification framework to an unfamiliarity-relatedness relationship in the context of acquisitions. Second, the authors propose a construct of target country unfamiliarity in acquisitions that goes beyond the traditional domestic vs cross-border dichotomy by including previous experience in the target country.