Week4_Tanriverdi and Uysal (2011)_Xinyu

Tanriverdi and Uysal (2011) theoretically develop and empirically validate the idea that the cross-business information technology integration (CBITI) capability of an acquirer is an important value-creation mechanism in mergers and acquisitions.

The paper proposes that CBITI capability create acquirer value through 1) IT cost savings, 2) minimization of potential disruption to business operation, 3) realization of business synergy, and 4) reduction of regulatory costs. Based on prior literature, the CBITI capability is measured by five dimensions of the IT integration of acquirer and target firms, and the data is collected from a survey published in Tanriverdi (2006). The value created in mergers and acquisitions is divided into short-run market-based value and long-run accounting-based value, which are observed through event study methods on capital market and firms’ operating performance, respectively. The value creation is proposed to be moderated by the industry relatedness between acquirer and target firms, which is also measured by the survey.

The findings indicate that, in the short run, acquirers with high levels of CBITI capability receive positive and significant abnormal returns on the capital markets. In the long run, acquirers with high levels of CBITI capability obtain significantly higher abnormal operating performance. However, the moderating effect of industry relatedness is only found in the long run scenario.

It is the first paper that link the construct of CBITI with mergers and acquisition performance.