Essays on corporate strategy: Evolution of corporate capabilities and the role of intangible assets

This dissertation is comprised of in depth analysis on the broader topic of corporate strategy with emphasis of the role of intangible assets. The first chapter looks at the performance implications of acquiring firms that have highly intangible assets structures. The second essay looks at dynamic characteristics as well as outcomes of developing intangible yet valuable corporate level capabilities in relation to managing alliances and acquisitions. The final section looks at the role of intangible assets in contracting between and within firms by utilizing property rights theory and the resource based view.; A consistent finding regarding mergers and acquisitions (M&A) is that: on average shareholders of target firms earn significant economic gains whereas shareholders of acquiring firms break-even (Jensen and Ruback, 1983; Jarrell et. al., 1988). Despite this general finding M&A activity has persisted, increasing in number and transaction value because, managers often perceive M&A activity as a mechanism for growth (e.g. Penrose, 1959). Therefore, it is natural to ask, 'What type of assets are worth buying?'; This paper investigates the long-run performance effects of acquiring intangible versus tangible targets. Intangibility of target is proxied by multiple measures based on R&D, advertisement and human capital stocks, and the Tobin's q 1-year prior to the corporate event. Using a sample of M&A transactions spanning a 4 year period (1988--1991), long-run-buy-and-hold expected returns are calculated by constructing portfolios of cohort firms that pursue M&A activity and tracked for 5 years. Each firm's long-run-abnormal performance is calculated as the excess return to the benchmark portfolio. Results show that on average, acquirers of intangible targets earn negative abnormal returns, whereas acquirers of tangible targets break-even. However, for the whole sample, there is no evidence of long-run abnormal returns.; Existence of asymmetric misvaluation between M&As of intangible versus tangible targets is tested by regressing short-run returns on the buy-and-hold long-run returns. Results provide evidence for market overreaction to the announcements that involve highly intangible targets. Overall, findings suggest that on average, ownership claim to the target's intangible assets via M&A does not transfer the associated economic value.; In the second section I investigate how long it takes for publicly traded firms within the United States to develop corporate capabilities for conducting alliances and acquisitions effectively. The development of corporate capabilities has been difficult to study directly because little information has been available on the accumulation at the corporate level of performance-enhancing knowledge. The research reported here relies on a dataset that tracks the behavior of the 3,595 firms that went through an initial public offering (IPO) between 1988 and 1999 to show how quickly corporate capabilities developed from the earliest years of firm formation.; In particular, we conduct an event-study analysis to investigate how the abnormal returns to alliance and acquisition announcements changed as the firms accumulated experience in conducting deals of each type. The results suggest that firms accumulated capabilities for executing and managing both alliances and acquisitions, and that investors came to expect that firms would continue to exploit their specialized capabilities into the future.; Finally I provide discussion of the theoretical implications of the empirical findings and contribute to the literature on corporate strategy and resources based view by incorporating insights from the property rights literature which can be considered as the recent development extension of transaction cost economics.