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Diversifying acquisitions and financial relationships: Testing 1974‐1976 behaviour
Author(s) -
Song Jae H.
Publication year - 1983
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.4250040202
Subject(s) - profitability index , market liquidity , exploit , business , balance sheet , profit (economics) , industrial organization , finance , economics , microeconomics , computer science , computer security
Fifty‐four diverisifying acquisitions in manufacturing and mining industries from 1974 to 1976 are investigated in terms of sales growth rate, rate of return on assets, and current ratio of the acquiring and acquired companies. The average characteristics of acquired companies, classified by the characteristics of their acquiring companies, are compared. Results indicate significant structural matches between the acquired and acquiring companies to exploit strengths and avoid weaknesses in growth, profitability, and liquidity. It appears that firms try to balance their business segments in terms of product life cycle stages within a limit of maintaining proper levels of profit.