Week4_Tanriverdi & Uysal (2011)_Yaeeun Kim

This paper considered the cross-business information technology integration (CBITI) capability of an acquirer as a potential value-creation mechanism in M&A. This study contributes to the M&A streams within the finance and strategy literature by explaining how and why the CIBTI capability of an acquirer following an acquisition.

In examining the short-run abnormal stock returns, capital markets are indifferent to whether the value will be created out of potential synergies in similar resources of related targets or complementary resources of unrelated targets, but it showed significant result when CBITI capabilities. Event study method was used to measure forward-looking expectations of the capital markets about the value-creation or destruction effects of CBITI in a new M&A. This method assumes that capital markets are efficient (efficient market hypothesis), incorporating into the stock price of the acquirer all relevant information about the acquirer. By setting an event day as 0, the event window is set as five-day [-2, 2], and examining the difference of actual returns and expected returns that when M&A was not announced.

In examining long-run abnormal operating performance (AOP), industry relatedness of a target was significant in moderation effect. Interestingly, the complexity of structure does not deter for superior CBITI capabilities integrate the complementary resources of unrelated targets acquired from different industries. To compute the long-run AOP of an acquirer after a new acquisition, an event study method was used again. This method is designed to capture changes in accounting-based measures of a firm’s operating performance relative to a benchmark, such as M&A. Industry benchmark minimizes problems such as differences in the prevent characteristics of firms leading to operating performance differences before the impact of the M&A event under consideration.