Week 4- Reading Summary – Leting Zhang
Tanriverdi, H., & Uysal, V. B. (2011). Cross-business information technology integration and acquirer value creation in corporate mergers and acquisitions. Information Systems Research, 22(4), 703-720.
Mergers and acquisitions (M&A) are common and important economic activities across many sectors of the economy. However, the role information technology plays in the process is ambiguous. This paper tends to investigate why and how cross-business information technology integration(CBITI) capability of an acquirer increase value for shareholders in M&A.
The main theory lies in the cross-business organizational integration, which could create additional value over and above the sum of the two firms’ individual value. In the scenario, cross-business IT integration could coordinate the create-creation process. The paper specifies there are five CBITI, 1. integration of IT infrastructures; 2. integration of IT applications and data; 3. integration of IT human resource management practices; 4. integration of IT vendor management; 5. integration of IT strategy-making practices. Then it also explains four major causal mechanisms behind the value-creation: 1. generating IT cost savings; 2. minimizing potential disruptions to business operations; 3. enabling the realization of business synergies; 4. enabling regulatory compliance and reduce costs of compliance. The paper also points out that different complementary resources of different industries could offer significant synergy potential. Based on these theories, it proposes that the CBITI level of an acquirer positively affects the performance of the acquirer in a new acquisition, and it positively affects the abnormal stock returns of the acquirer, the industry relatedness of target moderate the relationship between CBITI level of an acquirer and performance of it in a new acquisition, both in the short run and long run.
It collects data from different sources including a survey and different databases. Then they use the event study methodology to measure forward-looking expectations of the capital markets about the impact CBITI has. The hypotheses are supported by the results. This study contributes to the M&A literature in IS, finance etc and has important implications for CIO.