Wu Wang La inocencia

The third research question addressed in this dissertation is “how does acquisition impact the future growth strategy adopted by firms?” Specifically, this research question was concerned with how the change in the effectiveness of capabilities and the change in the scope of capabilities would impact a firm’s decision to pursue future internal development and future acquisitions. Consequently, Section 6.3.1 will discuss results that pertain to the adoption of future internal development and, Section 6.3.2 will discuss what the results of the study revealed about how the change in the effectiveness and scope of capabilities impacted the likelihood of future acquisition.

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6.3.1 Impact of the Change in Capability Effectiveness and Scope on the Likelihood of Future Internal Development

Results of the study revealed that change in capability effectiveness was positively associated with the likelihood of future internal development. These results suggest that as a firm experiences a decline in the effectiveness of its capabilities, it is less likely to pursue a de novo, new market entry in the three years following acquisition. Additionally, as a firm experiences increases in the effectiveness of its capabilities, it becomes increasingly likely to pursue a de novo, new market entry in the three years following acquisition. These results were consistent across various types of revenue-generating, operating, and TMT capabilities.

Accordingly, results suggest that as a firm experiences a decline in its revenue- generating, operating, and/or TMT capabilities, it is less likely to further strain its already suffering capabilities through internal development. Alternatively, when the firm experiences an improvement in the effectiveness of its revenue-generating, operating, and/or TMT capabilities, the firm is more likely to replicate and leverage its strengthened capabilities through internal development.

While results for the change in the scope of private banking and merchant services capabilities illustrated a positive relationship with the likelihood of conducting a new market, de novo entry in the three years following acquisition, the overall results across the majority of capabilities did not support the notion that an increase in the scope of capabilities increases the likelihood of future de novo, new market entry. Therefore, evidence was mixed for the notion that increasing the scope of a firm’s capabilities increases the likelihood that the firm pursues future internal development.

Overall, results strongly support the idea that firms that increase the effectiveness of their capabilities are more likely to pursue future internal development and that those firms that decrease the effectiveness of their capabilities are less likely to pursue future internal development. Additionally, there is modest support for the idea that as a firm increases the scope of its capabilities through acquisition, the firm is more likely to pursue future internal development.

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6.3.2 Impact of the Change in Capability Effectiveness and Scope on the Likelihood of Future Acquisition

Results of analyses predicting the likelihood of future acquisition were more equivocal. The research model in this dissertation proposed that the likelihood of future acquisition would have a U-shaped relationship with the change in capability effectiveness such that the likelihood of future acquisition would be high when either the change in effectiveness was negative or positive, but when the change in effectiveness was close to zero, the likelihood of acquisition would be low. This hypothesis was supported in several of the models examined, but several models revealed an alternative relationship between the change in capability effectiveness and future acquisition.

First, the relationships between the change in effectiveness and likelihood of future acquisition were significant and in the hypothesized direction for retail banking and commercial banking capabilities. These results revealed that when retail or commercial banking capabilities experienced a decline in effectiveness, the firm was more likely to pursue acquisition in the three years following the focal acquisition. Therefore, it appears that when banks experience a decline in the effectiveness of capabilities that are fundamental to the success of the organization, they are likely to pursue future acquisitions to compensate for weak revenue-generating capabilities. Interestingly, those firms that experienced an improvement in retail and commercial capability effectiveness were also more likely to pursue future acquisition. Thus it appears that another driver of future acquisition is the ability and desire to leverage the strengthened capability in a new setting. However, firms that experienced neither a decline nor improvement in retail and commercial capabilities had a relatively low likelihood of pursing an acquisition in the three years following the focal acquisition.

Secondly, similar to the results for retail and commercial capabilities, a decline or improvement in the TMT’s ability to share best practices across different units increased the likelihood of future acquisition. It is not surprising that a firm that becomes better at sharing best practices across units is more likely to pursue future acquisitions, but it is surprising that a decline in this capability is positively associated with future acquisitions. Intuitively it serves to reason that the ability to share best practices would be important for acquisition success and that future acquisition would be particularly likely to further weaken the particular capability. One potential explanation for this result is that those firms that pursue future acquisitions are more

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likely to purposefully cultivate and nurture their ability to share best practices across units as a means to benefit from future acquisitions, and therefore may be more likely to detect an improvement or a decline in the capability. An alternative explanation may be that those firms that experience a decline in the ability to share best practices may actively seek to acquire firms with strong capabilities in this area with the hope that those strong practices will spill over to units in the acquiring organization.

Contrary to the predictions of the research model, change in the effectiveness of several capabilities actually had an inverted U-shaped relationship with the likelihood of future acquisition. Specifically, the change in effectiveness of merchant services, treasury management, risk management, compliance, and branch management capabilities as well as the change in effectiveness of the TMT’s ability to instill climate and cohesiveness and instill direction and vision all had an inverted U-shaped relationship with the likelihood of future acquisition. These results suggest that when firms experience a decline in these capabilities, they do not continue to tax their already strained capabilities with a future acquisition. Similarly, when a firm increases the effectiveness of these capabilities beyond a certain point, it is less likely to pursue a future acquisition. One potential reason for this may be that firms that improve their capabilities may be more likely to focus on leveraging and realizing the rewards of the improved capability within the firm before further leveraging them in a new setting. In particular, the TMT’s improved ability to establish a positive climate and cohesiveness and its ability to provide a direction and vision for the organization are likely to positively impact the organization in the short-run and those capabilities could be potentially weakened if future acquisition is pursued too soon after the capability improved.

Overall, the results of the analyses examining the impact of the change in capability effectiveness on future acquisition reveal that the impact that the change in effectiveness has on the likelihood of future acquisition largely depends on the type of capability. A decline in the effectiveness of capabilities that are considered central to firm performance increased the likelihood for future acquisition. Acquisition under this scenario may be deemed necessary to maintain competitive position through economies of scale and scope as opposed to developing superior capabilities. Alternatively, a decline in managerial capabilities or in revenue or operating capabilities that are not necessarily central to firm success actually decreases the likelihood of future acquisition. Therefore, it may be that firms that maintain the strength of

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their key capabilities but experience a decline in less critical capabilities may actually feel less pressure to pursue new acquisitions due to a decline because the decline in capabilities that are less central to firm success does not significant impact a firm’s ability to take advantage of revenue-generating opportunities.

Collectively, the results also reveal that an overall improvement in those capabilities fundamental to firm success increases the likelihood of future acquisition. Therefore, firms that have particularly strong capabilities in areas most likely to provide a competitive advantage are more likely to find opportunities to leverage those improved capabilities through acquisition of other firms. Alternatively, the improvement of other types of capabilities decreases the likelihood of future acquisition. This effect may be particularly likely when the capabilities need to be fostered, developed, and leveraged internally before applying the capability in a new setting through acquisition.

The results also illustrated that as firms increased the scope of their capabilities through acquisition, the likelihood of future acquisition declined. This finding is most likely the result of the time required to learn more about the new capability, share the capability among various units of the organization, and fully leverage the new capability. As the firm increases the scope of its capabilities into entirely new areas, the firm may be less likely to pursue future acquisitions so that it may fully realize the potential of the new capability before managerial attention and financial resources are directed to new acquisitions.

6.4 IMPACT OF THE RENEWAL OF CAPABILITIES ON THE CHANGE IN