When Theory Doesn't Meet Practice: Do Firms Really Stage Their Investments?
Year: 2013
Type: article
Abstract: Theory has often discussed the benefits of adopting a staged investment strategy in mergers and acquisitions when investments hold uncertain prospects. Specifically, firms should enter into a cooperative agreement, such as a strategic alliance, before they eventually decide to buy out a partner. In this paper, we first review the theoretical arguments supporting such an approach and then provide evidence showing that staged investments in mergers and acquisitions are far less frequent than theory predicts. We analyze a sample of 24,495 global transactions that occurred between 1995 and 2010 and find that firms stage mergers and acquisitions in only 1.26% of all deals. This figure changes little after we control for transaction- and environmental-level considerations. We propose several explanations of why staged investments are seldom used in practice, despite their theoretical properties.
Authors: Roberto Ragozzino, Caterina Moschieri
Institutions: Esade, Universitat Ramon Llull, IE University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2113611876