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Management International Review
Published in: Management International Review 3/2016

11-05-2016 | Research Article

Resource Deepening Vs. Resource Extension: Impact on Asset-Seeking Acquisition Performance

Authors: Sathyajit R. Gubbi, B. Elango

Published in: Management International Review | Issue 3/2016

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Abstract

Seeking critical assets is known to be a key motivation for emerging economy firms to make acquisitions in foreign markets, especially those in developed economies. In this study, we probe this motivation further by identifying two categories of asset-seeking acquisitions: resource deepening and resource extension. Using a sample of 1004 cross-border acquisitions conducted by Indian firms during the period 2000–2010, we find support for the hypothesis that the type of resources sought and their intended utility impacts acquisition performance. Additionally, for resource extension acquisitions, we find that acquisition performance outcomes vary by the assimilative capacity of the firm and the extent of experience in acquisitions at the firm and business group level.
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Appendix
Available only for authorised users
Footnotes
1
Under asset-seeking acquisitions, we include both upstream and downstream assets, since when firms from emerging markets “…acquire companies abroad, they may appear to be engaging in market-seeking internationalization when, in fact, they are engaging in strategic asset seeking.” (Ramamurti 2012, p. 43).
 
2
Generally, when firms make acquisitions, they diversify operations. Diversification can be viewed from the output side as inter- or intra-industry diversification and from the input or process side in terms of resource or functional relatedness (Li and Greenwood 2004; Tanriverdi and Venkatraman 2005). Given the context of emerging economies in the post-reform period, our interest is mainly in the notion of relatedness on the input or process side. Hence, both resource deepening and resource extension acquisitions mainly conform to related acquisitions with a varying degree of relatedness between the acquirer and target resource profiles.
 
3
As described in the results section, we incorporate the Heckman (1979) two-step procedure to account for the propensity of a firm to engage in acquisitions. For this purpose, we take into account all the firms with data in the Prowess database corresponding to the industries in which acquisitions were made.
 
4
As an alternate, we cross-verify all our models with a 7 day window period (−3 to +3 days).
 
5
Two variables were created, since historical and social aspiration performance measures tend to strongly correlate and cannot be used in the same model.
 
6
We do not anticipate interactive relationships between resource deepening acquisitions and moderators due to a lack of strong theoretical rationalizations. However, for the sake of completeness we created the relevant variables with interaction effects. We included these additional interaction terms in the fully specified model reported in Table 3. We did not find any statistically significant interaction between resource deepening acquisitions and the moderators, and hence do not report them in the tables.
 
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Metadata
Title
Resource Deepening Vs. Resource Extension: Impact on Asset-Seeking Acquisition Performance
Authors
Sathyajit R. Gubbi
B. Elango
Publication date
11-05-2016
Publisher
Springer Berlin Heidelberg
Published in
Management International Review / Issue 3/2016
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI
https://doi.org/10.1007/s11575-016-0282-y

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