The study had two main limitations to the generalizability o f its results. First, the
research design restricted the types o f events studied to either horizontal or market
extension types o f M&A, therefore allowing only a limited variation o f the resource
relatedness construct. Hence, the study did not incorporate the full explanatory power o f
the relatedness hypothesis. However, the dimension along which the construct operated
in the study, essentially the geographic overlap o f the network o f facilities, provided
sufficient variability for the underlying value creation mechanism (the exploitation o f
economies o f scale) to operate. In-market acquisitions are driven, in theory as well as
practice, by the opportunity to cut the cost structure o f the acquired firm and thus realize
the “synergies” that are supposed to justify the premiums paid. Out-market (market
extension) acquisitions are forced to rely, at least in part, on other (i.e., "softer”) value
creation mechanisms, typically considered more weakly correlated with performance.
Therefore, the problem with the relatedness measure in the study is not so much lack o f
consideration o f diversified acquisitions, but the limited degree o f correlation with the
other measures o f similarity gathered through the Phase 2 survey. The degree o f market
relatedness, in terms o f geographic overlap as well as customer segments served, does not
correlate well with the internal measures o f resource relatedness deduced from the degree
of similarity in inform ation systems, human resources practices, operating procedures, 147
etc. (see section D.2 in Exhibit D). That finding is not novel for researchers who study
the varied dimensions o f organizational relatedness, and supports the claim that the
product market and the organizational dimensions o f the construct should not be
confounded and their association taken for granted (Haspeslagh & Jemison, 1991; Datta,
1991).
The second limitation is in the generalizability o f the results to different industry
contexts. Some o f the observations from both the fieldwork and the statistical analysis o f
the survey data m ight be specific to the commercial banking industry, or at least to the
service sector. For example, the primary role o f information system conversion might be
a consequence o f the specific type o f information-based products provided by the
banking industry. Similarly, the strong predisposition to codify the integration procedures
could be caused by an industry-based cultural bias favoring detailed codification (i.e..
bureaucratization) o f internal procedures. If this were the case, however, the hypothesis
o f positive performance implications o f the degree o f codification might be harder, not
easier, to support in the industry context studied. Those issues can be resolved only
through replications o f the study in different industries; o f particular interest would be the
study o f the theoretical framework in contexts characterized by high technological
change (electronics or telecommunications, for example), or by different patterns o f
customer demand (e.g. consumer vs. industrial products). The fundamental patterns
found in the study have been observed, however, in a number o f case studies in very
different contexts such as white goods (Electrolux), industrial products (Cooper
Industries), and retailing (The Limited).
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More worrisome than the generalizability problems are operational issues related
to measuring the performance o f the post-acquisition integration process and the limited
number o f degrees o f freedom available for the analysis o f short-term firm performance.
Subjective performance assessment generally does not allow a good quality o f inter-firm
comparison, as what is considered satisfactory by a certain acquirer (e.g., a relatively
inexperienced one) might not be by another. The ideal solution would be to gather either
accounting or process performance data from the acquired entity standpoint but such data
are usually very difficult to obtain because acquirers themselves do not collect them.
However, the acquisition performance measures used, based on the acquirer’s accounting
data, are highly generalizable and “perform” very well in spite o f the fact that the average
acquisition is only a small fraction o f the acquirer’s assets.
Finally, the limited number o f observations at the firm level o f analysis was due
to participant attrition between the first and the second rounds o f the survey. Also, three
o f the respondent banks were privately held and only part o f their financial data was
obtainable. Other problems include missing data, particularly on the asset size o f the
completed acquisitions. That limitation works against the hypothesis-testing effort,
however, as the low number o f observations implies that the standard deviation o f the
estimated coefficient is typically overestimated with respect to the theoretical population.
As both the stability and the magnitude o f the coefficients are reduced, assessments of
their statistical significance are overly conservative. In other words, for variables that are
associated significantly with firm performance, the magnitude o f the effect is likely to be
maintained even with larger sample sizes. In contrast, it is not possible to determine
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whether non-significant impacts occurred because o f either the small sample size or an
effective lack o f explanatory power.
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