The Choice Between Joint Ventures and Acquisitions: Insights from Signaling Theory

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The Choice Between Joint Ventures and Acquisitions: Insights from Signaling Theory

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Title: The Choice Between Joint Ventures and Acquisitions: Insights from Signaling Theory
Author(s):
Reuer, Jeffrey J.;
Ragozzino, Roberto
Format: text
Item Type: article
Keywords: Consolidation and merger of corporations
Strategic alliances (Business)
Joint ventures
Abstract: This paper extends information economics in corporate strategy and organizational governance research by using signaling theory to explain firms' market entry modes. We exploit features of the initial public offering (IPO) context to investigate how signals on newly public firms shape other companies' governance choices to form joint ventures with them versus acquiring them. We also develop theoretical arguments on how the value of these signals will vary across exchange partners. The results reveal that companies are more apt to acquire, versus partner with, IPO firms taken public by reputable investment banks compared with IPO firms associated with less prominent underwriters. Venture capitalist backing also appears to be a valuable signal for prospective acquirers, particularly when the acquirer and target reside in different industries and possess dissimilar knowledge bases. We also present evidence that signals affect target selection and the emergence of market segmentation for joint venture partners and acquisition candidates.
ISSN: 1047-7039
Persistent Link: http://dx.doi.org/10.1287/orsc.1110.0692
http://hdl.handle.net/10735.1/3212
Terms of Use: © 2012 INFORMS

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