Excess resources, utilization costs, and mode of entry

Article Abstract:

This study integrates the concepts of utilization costs, resource-based theories, and capital market imperfections into a new framework to explain how companies choose to enter new markets. Two modes of entry are considered: direct entry and acquisition. Factors are identified that help entrant firms choose the mode of entry that will minimize the cost of utilizing their excess resources in new markets. Employing current capital market theory and the assumption that information is asymmetric between firms and the capital market, the study demonstrates that utilization costs will differ for different types of resources for the two modes of entry. Good support for the theoretical predictions emerged from a model tested on 144 diversification moves. (Reprinted by permission of the publisher.)

Analysis, Capital market, Capital markets, Management research

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Measurement of firm diversification: is it robust?

Article Abstract:

This study investigated the convergent validity of Rumelt's categorical classification of types of business diversification across differential data sources and variations from Rummelt's method. The study also assessed convergent and predictive validity of Rumelt's classification and continuous measures of diversification. It also investigates the ability of continuous measures to discriminate between Rumelt's categories. The results suggest weak convergent validity for Rumelt's measures but good discriminating power of continuous measures to discriminate between Rumelt's measures. Finally, the measures demonstrate predictive validity with specific performance criteria. (Reprinted by permission of the publisher.)

Management, Conglomerate corporations, Diversification in industry, Industrial diversification

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Gains in vertical acquisitions and market power: theory and evidence

Article Abstract:

This study investigated the factors that can explain the gains resulting from vertical mergers. The findings suggest that acquiring firms gain the most when they come from concentrated markets and target firms come from fragmented markets. The findings also suggest that, on the average, the firms studied increased their market power as a result of mergers. (Reprinted by permission of the publisher.)

Acquisitions and mergers, Vertical integration, Market share

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