Experiential Learning,Geographical Overlap And Sequential Acquisition

In the context of the optimization of industrial structure,the continuous development of the capital market and the transformation and upgrading of enterprises in China,acquisitions between Chinese firms have been regarded as a popular strategy for rapid external development An acquisitions requires a lot of resource commitments.However,before an acquisition,information about the target's development prospects,asset quality,core technology,corporate culture,and market environment are imperfect for the acquirer(asymmetric information).And the target has a natural motivation to disclose positive information,conceal negative information,and decorate its abilities that difficult to verify(adverse selection risk).Therefore,the ambiguity of the real value of the target and the volatility of the expected synergies will directly lead to the uncertainty of an acquisition.Under this condition,how do companies choose a proper purchase strategy?The potential advantages and disadvantages of sequential acquisition and one-time acquisition make the choice of purchase strategy a difficult decision-making issue.Should companies pursue decision-making flexibility through a sequential acquisition strategy?Or should it be a one-time acquisition to quickly and decisively obtain an ownership advantage?What are the prerequisites for choosing a purchase strategy?This is not only the decision dilemma faced by business managers,but also the practical problem that this study focuses onThe real option theory provides a fitting framework for explaining firms' strategic decision-making under the uncertain environment.The key point is that,firms will pursue investment strategies with greater flexibility if uncertainty will not be mitigated effectively The choice between sequential acquisition and one-time acquisition is essentially a trade-off between flexibility and commitment.On the basis that real option theory,this study reviews relevant literatures,proposes inherent logical relationships between experiential learning,geographic overlap and sequential acquisition.Then this study constructs a conceptual model to develop corresponding research hypothesesBased on the 443 acquisitions completed by Chinese listed firms from 2008 to 2018,results show that:(1)Acquirer can alleviate uncertainty through experiential learning.Acquirer with industry-related acquisition experience is more likely to choose a one-time acquisition rather than a sequential acquisition.(2)There is a substitution effect between external and internal experiential learning.As the number of acquisitions in the acquirer's industry increases,the impact of industry-related acquisition experience on the sequential acquisition is weakened(3)Acquirer can collect information through geographic overlap to mitigate uncertainty.When acquirer and target of the acquisition are both located in a same region(province or municipality),acquirer is more likely to choose a one-time acquisition rather than a sequential acquisition.(4)Uncertainty and irreversibility of a focal acquisition affect the value of sequential acquisition.That is,as the relative size between acquirer and target increases,the impact of geographic overlap on the sequential acquisition is weakened.In addition,the exploratory analysis in this paper found that sequential strategy of an acquisition plays a positive role in post-acquisition performance only if acquirer and target located in different region.It shows that the value of sequential acquisition is based on uncertainty.Results of this study not only extend and test the real option theory,but also make up for its shortcomings in explaining the endogenous characteristics of uncertainty and investment irreversibilityThe theoretical contributions and innovations of this paper as follows:(1)By revealing the effects of experiential learning and geographic overlap on the decision-making of sequential acquisition,it not only deepens the understanding of uncertainty and its mitigation mechanisms,but also helps to identify how endogenous uncertainty influence decision-making of an acquisition.(2)Applying real option theory to the context of M&As not only expands and tests the real option theory,but also enriches the research literature on M&As.(3)By revealing the main effect of experiential learning and the substitution effect of internal and external experiential learning,while filling the gap of existing literatures,it has enriched the study of experiential learning mechanisms as well.(4)This study shows that geographic overlap is conducive to information gathering of acquirer.It is not only an empirical test of geographic strategic literatures,but also a useful supplement to this research field.At the same time,this research also has certain enlightenments for managers about responding to uncertainty actively and understanding real options.