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The prognostics of diversifying acquisitions
Author(s) -
Balakrishnan Srinivasan
Publication year - 1988
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.4250090208
Subject(s) - event study , argument (complex analysis) , industrial organization , ibm , prognostics , stock market , business , value (mathematics) , mergers and acquisitions , economics , financial economics , marketing , finance , computer science , paleontology , biochemistry , context (archaeology) , chemistry , materials science , horse , machine learning , data mining , biology , nanotechnology
The paper offers a possible explanation for the discrepancy between the observed increase in the number of diversified firms in the U.S. and the evidence from finance studies which at best offers only weak support for value creation in diversifying acquisitions. It is argued that the acquisition could be the culmination of a series of related strategic moves by the acquiring firm to enter a new industry, and therefore a significant fraction of the gains from synergy could have been anticipated by the capital market well ahead of the acquisition. Results from an event study of the stock market's reactions to the antecedents of the recent acquisition of Rolm Inc. by IBM lend support to this argument.