Strategic Management Journal

Strat. Mgmt. J., 25: 187–200 (2004)

Published online 4 November 2003 in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.371

META-ANALYSES OF POST-ACQUISITION
PERFORMANCE: INDICATIONS OF
UNIDENTIFIED MODERATORS
DAVID R. KING,1 * DAN R. DALTON,2 CATHERINE M. DAILY2 and
JEFFREY G. COVIN2
1
Air Force Pentagon (SAF/AQP), Arlington, Virginia, U.S.A.
2
Kelley School of Business, Department of Management, Indiana University,
Bloomington, Indiana, U.S.A.

Empirical research has not consistently identified antecedents for predicting post-acquisition
performance. We employ meta-analytic techniques to empirically assess the impact of the most
commonly researched antecedent variables on post-acquisition performance. We find robust
results indicating that, on average and across the most commonly studied variables, acquiring
firms’ performance does not positively change as a function of their acquisition activity, and is
negatively affected to a modest extent. More importantly, our results indicate that unidentified
variables may explain significant variance in post-acquisition performance, suggesting the need
for additional theory development and changes to M&A research methods. Copyright  2003
John Wiley & Sons, Ltd.

Since the last meta-analytic review of merger Hoskisson, Johnson, and Moesel, 1994; Sirower,
and acquisition1 (M&A) performance (Datta, 1997). The goal of the current study is to cumu-
Narayanan, and Pinches, 1992), trillions of dol- late the findings of published research on post-
lars have been spent in the acquisition of tens acquisition performance and to identify promising
of thousands of firms (Gupta and Gerchak, 2002) directions for further M&A research.
and dozens of studies examining post-acquisition Our study makes multiple contributions beyond
performance have been published. Unfortunately, Datta et al. (1992). First, our study more than
research does not uniformly support managers’ doubles (93 vs. 41) the number of published stud-
apparent enthusiasm for the practice, with the ies analyzed. Our meta-analyses are based on a
impact of acquisitions on acquiring firm per- larger sample of studies, allowing better estima-
formance remaining ‘inconclusive’ (e.g., Haspes- tion of the population value for the relationships
lagh and Jemison, 1991; Roll, 1988; Sirower, between commonly studied M&A antecedent vari-
1997). Further, existing empirical research on post- ables. Second, the increase in the number of stud-
acquisition performance has not consistently iden- ies in our meta-analyses also allows examination
tified antecedents that can be used to predict of the impact of an additional variable, acquisi-
post-acquisition performance (Hitt et al., 1998; tion experience, on post-acquisition performance.
Third, our study is the first to cumulate research
Key words: mergers and acquisitions; post-acquisition findings for both stock and accounting measures
performance; diversification; meta-analysis of post-acquisition performance. The Datta et al.
*Correspondence to: Major David R. King, Air Force Pentagon (1992) study does not include accounting measures
(SAF/ AQP), 1500 Wilson Blvd., 11–105, Arlington, VA 22209,
U.S.A. E-mail: [email protected]
of performance. Although the majority of existing
1
Empirical research has used the terms merger and acquisition post-acquisition performance research uses stock
interchangeably; we adopt this same convention. market-based measures of performance (Bild,

Copyright  2003 John Wiley & Sons, Ltd. Received 20 May 2002
Final revision received 30 July 2003
188 D. R. King et al.

1998; Sirower, 1997), the use of multiple mea- An additional methodological consideration is
sures has consistently been encouraged (Hoskisson that a potentially rich area for pursuing future
and Hitt, 1990; Lubatkin, 1983) to facilitate cumu- M&A research is to examine the impact of
lating research across disciplines (Ramanujam and interactions on post-acquisition performance (Hitt
Varadarajan, 1989) and to improve the understand- et al., 1998; Hoskisson and Hitt, 1990). Several
ing of differences between accounting and stock recent studies from strategy serve as exemplars
market measures (Hoskisson et al., 1993). Fourth, of M&A research that examine interactions in
we use multiple event windows in our meta- post-acquisition performance (e.g., Banaszak-Holl
analyses to detect whether the impact of acquir- et al., 2002; Capron, 1999; Hitt et al., 1996;
ing another firm impacts post-acquisition perfor- Hoskisson et al., 1993; Krishnan, Miller, and
mance differently, while Datta et al. (1992) do not Judge, 1997). Unfortunately, the studies do not
differentiate between the event windows of stud- exist in large enough numbers to allow cumulating
ies included in their analysis. Fifth, our results their results using meta-analysis, indicating that
based on a larger sample (1790 to 29,050 vs. additional theory development and empirical
409 observations) conflict with the finding that research on M&A activity is needed.
method of payment impacts post-acquisition per- The theoretical implications of our findings
formance (Datta et al., 1992) and contradicts the- are also important. The most common theoreti-
ory from finance (e.g., Travlos, 1987) that method cal rationale for M&A activity is the search for
of payment helps predict post-acquisition perfor- synergy, or the concept that the sum of merging
mance. Finally, our use of up-to-date meta-analytic two firms is greater than their individual parts (i.e.,
methods facilitates the identification of moderating 2 + 2 = 5). Research has identified a need to iden-
effects, a significant contribution of our study. tify factors leading to synergy creation in acquisi-
Our results indicate that post-acquisition per- tions (Capron, Dussauge, and Mitchell, 1998; Hitt
formance is moderated by variables unspecified et al., 1998). Synergy, as suggested by Sirower
in existing research. Meanwhile, the impact of (1997), however, may be too nebulous a con-
four variables commonly examined in existing cept to be the core element in models purporting
literature was not significant in explaining vari- to explain post-acquisition performance. Improve-
ance in post-acquisition performance. Thus, exist- ments in model validity may be possible if M&A
ing empirical M&A research has not clearly and theorists instead embrace such concepts as parent-
repeatedly identified those variables that impact ing advantage (Campbell, Goold, and Alexander,
an acquiring firm’s subsequent performance. An 1995), complementary resources (Harrison et al.,
implication of the preceding major finding—i.e., 2001), or absorptive capacity (Zahra and George,
that no post-acquisition performance effect exists 2002) as core to their models. These latter con-
for antecedent variables that have been repeatedly cepts may better focus research attention toward
studied—is that changes to both M&A theory and those tangible effects and variables that must be
research methods may be needed. operating or aligned in order for synergy to be
From a methodological standpoint, there is little realized. In short, the high level of conceptual
overlap in the variables (approximately one-third) abstraction introduced by building post-acquisition
used by researchers to explain post-acquisition performance research models around the concept
performance. ‘New’ effects are characteristically of synergy, rather than its more specific deter-
sought over replication of known effects, so knowl- minants, may have contributed to the difficulty
edge accumulation has been slower than might be researchers have experienced in creating models
expected given the high level of research activity that garner empirical support.
in the M&A area. Importantly, because research
variables of demonstrated importance are regu-
larly excluded from M&A studies, underspecifica- CUMULATING POST-ACQUISITION
tion of research models that can bias conclusions PERFORMANCE RESEARCH
(see Griffiths, Hill, and Judge, 1993) may be the
norm in M&A research. Future M&A researchers Post-acquisition performance research has com-
would be well advised to use variables from exist- monly examined the impact of four vari-
ing M&A research as a foundation to build new ables: whether or not the acquisition was
models of post-acquisition performance. by a conglomerate firm (e.g., Agrawal, Jaffe,
Copyright  2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 25: 187–200 (2004)
 Meta-analyses of Post-acquisition Performance 189

and Mandelker, 1992; Berger and Ofek, 1995; times greater than the S&P500 between 1965 and
Lubatkin, 1987), whether or not the acquisition 1968, and 2.7 times greater than the S&P500
was of a related firm (e.g., Hayward and Hambrick, between 1965 and 1983. Additionally, Campa and
1997; Lubatkin, Srinivasan, and Merchant, 1997; Kedia (2002) conclude that, for firms that pur-
Walker, 2000; Wansley, Lane, and Yang, 1983), sue it, diversification is a value-enhancing strategy.
the method of payment (i.e., cash or equity) used A positive impact on performance in conglomer-
for the acquisition (e.g., Franks, Harris, and Mayer, ate firms is suggested since they are more likely
1988; Travlos, 1987; Walker, 2000), and whether to possess a business integration competence that
or not the acquiring firm had prior acquisition allows them to create rather than simply acquire
experience (e.g., Franks, Harris, and Titman, 1991; value through M&A activity (Salter and Weinhold,
Haleblian and Finkelstein, 1999; Hayward, 2002; 1978). The assumed presence of what might be
Kroll et al., 1997). Additional factors may impact termed a ‘conglomerate effect’ on post-acquisition
post-acquisition performance; however, they have performance has led to several studies in this area
not been examined in sufficient numbers to be con- (e.g., Agrawal et al., 1992; Lubatkin, 1987).
sidered in the present meta-analyses.2 On the other hand, several studies indicate that
a ‘diversification discount’ exists (Agrawal et al.,
1992; Anand and Singh 1997; Berger and Ofek,
Conglomerate firms 1995; Lang and Stulz 1994). For example, Berger
Conglomerate firms are commonly defined in the and Ofek (1995) compare the value of the entire
strategic management literature as those exhibit- diversified firm to the sum of its segments, and
ing significant unrelated product-market diversi- conclude that diversified firms have 13–15 percent
fication (Rumelt, 1974). A broader definition of less value than the sum of their segments would
conglomerates is adopted in the Federal Trade have independently. An example of the logic that
Commission (FTC) database (covering the years suggests the stock performance of conglomerate
1948 through 1979) on M&A activity that is firms is discounted is that, since they aggregate
employed in much of the extant research on the their financial performance from several divisions,
effects of conglomerate diversification on post- there is more uncertainty in predicting their cash
acquisition performance. Conglomerate mergers, flows.
as defined by the FTC, involve the acquisition of
completely unrelated companies, companies in dif- Related acquisitions
ferent geographic markets, or companies whose
products do not directly compete with those of The relatedness of acquired firms to their acquirers
the acquiring firm. However, empirical evidence (where relatedness is defined in terms of resource
on the impact of diversification on post-acquisition or product-market similarity) is often assumed to
performance is contradictory, with research sug- impact the post-acquisition performance of the
gesting that some firms benefit from the diversi- acquiring firms. Specifically, the preponderance
fication but that, on average, most firms do not of M&A literature suggests that acquiring related
(Loughran and Vijh, 1997). The present research firms leads to increased post-acquisition perfor-
cumulates the following, conflicting findings on mance (e.g., Capon et al., 1988; Kusewitt, 1985;
the impact of diversification. Palich, Cardinal, and Miller, 2000; Rumelt, 1974,
On one hand, Ravenscraft and Scherer (1987) 1982). Business relatedness is said to enable the
note that the 13 most acquisitive conglomerate acquiring firm’s managers to effectively employ
firms, accounting for 16 percent of all FTC- their ‘dominant logic,’ or common conceptualiza-
recorded M&A activity, experienced returns 3.6 tion of the success requirements in an acquired
business (Prahalad and Bettis, 1986). Industry
familiarity can eliminate or significantly diminish
2
Empirical research has explored the effects of literally dozens the need for acquiring firm managers to ‘learn’
of independent variables on post-acquisition performance. We
limit our review, however, to those variables revealed by our the business of the acquired firm, and facilitate
meta-analyses to be common to three or more studies in which learning from the acquisition process per se (Hitt,
the same ‘performance’ variable was examined (Dalton et al., Harrison, and Ireland, 2001).
2003). As such, we only review variables that we know can be
tested based on the known existence of a critical mass of relevant In the context of acquisitions that require sig-
empirical studies. nificant managerial involvement, familiarity with
Copyright  2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 25: 187–200 (2004)
190 D. R. King et al.

the acquired firm’s market is often key to the suc- existing research may demonstrate whether such a
cessful post-acquisition integration of the acquired relationship exists.
business (Roberts and Berry, 1985). Moreover,
related acquisitions can enable the acquiring firm’s
pre-existing resources to be productively lever- Acquisition experience
aged in new businesses where those resources are Acquisitions create complex organizational chal-
more likely to be valued and relevant. These argu- lenges, and both individual and organizational
ments are not meant to suggest, of course, that experience may be required to avoid integration
related acquisitions are without risk. As observed problems (Haspeslagh and Jemison, 1991). For
by Bergh (1997), acquisition relatedness may sim- example, at the individual level, lack of acqui-
ply reduce the financial risk inherent to acquisi- sition experience may make a CEO particularly
tions. The present research cumulates the findings susceptible to escalation of commitment that can
of the acquired firm relatedness on acquiring firm lead to the completion of deals at unreasonably
performance. high costs (Haspeslagh and Jemison, 1991). Addi-
tionally, experience from past acquisitions may
Method of payment build facilitating processes for the identification
(Hitt et al., 1998) and integration of acquired firm
There are two fundamental methods by which an resources, which may be required to improve post-
acquiring firm can pay for an acquisition: cash acquisition performance.
and stock shares (equity). Research from finance However, consistent findings on the relation-
suggests that an acquiring firm’s managers will ship between acquisition experience and post-
seek to finance an acquisition in the most profitable acquisition performance do not exist. Prior acquisi-
way (Travlos, 1987). Specifically, managers will tion experience has been found to predict success
finance an acquisition with cash if they believe in later acquisitions (Bruton, Oviatt, and White,
their firm’s stock is undervalued, and with equity 1994; Fowler and Schmidt, 1989), to predict a
(i.e., shares of stock) if they believe their firm’s decline in performance as the number of acqui-
stock is overvalued. Therefore, the use of cash sitions increase (Kusewitt, 1985), and to have no
as the acquisition medium may signal manager impact on acquisition performance (Lahey and
expectations that post-acquisition performance will Conn, 1990). Still, Hitt et al. (2001: 55) caution
be particularly strong. that ‘the importance of the link between manage-
The method of payment also affects the method rial experience and M&A success should not be
of accounting for an acquisition, which has impli- underestimated’ and we cumulate research findings
cations for post-acquisition performance. Histori- on acquisition experience.
cally, there have been two methods of accounting
for an acquisition: the pooling of interests method
and the purchase method.3 Pooling of interests is
primarily used when an acquired firm is acquired
METHOD
using stock as payment (Ravenscraft and Scherer,
1987). Pooling of interest accounting is associated Sample
with higher acquisition premiums (Ravenscraft and We employed multiple search techniques to iden-
Scherer, 1987), and premiums paid for acquired tify empirical research that included M&A activ-
firms have been shown to negatively impact post- ity and financial performance. Whether a given
acquisition performance (Hayward and Hambrick, indicator of such activity or performance was an
1997; Sirower, 1997). Still, a direct relationship independent, dependent, or a control variable was
between method of payment and post-acquisition unimportant. These variables need not have been
performance remains to be demonstrated (Hayward the main focus of a given study to be included
and Hambrick, 1997), and cumulating results from in the meta-analyses. It was only necessary that a
simple correlation (r) between these variables be
3
The Financial Accounting Standards Board eliminated pooling available in the article or derivable from it (see,
of interests accounting and modified recording of goodwill with for example, Lipsey and Wilson, 2001; Rosen-
purchase accounting for all acquisitions completed after July 1,
2001 (Weil, 2001). For an explanation of the different methods berg, Adams, and Gurevitch, 2000 for conversion
of accounting for a merger see Ravenscraft and Scherer (1987). protocols).
Copyright  2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 25: 187–200 (2004)
 Meta-analyses of Post-acquisition Performance 191

By a combination of computer-aided, key word (ROE), return on sales (ROS)). It is important

searches and manual searches of certain perti- to note that the variables on which we rely for
nent journals in accounting, finance, economics, our analyses do not reflect our preferences, but
and management (e.g., Academy of Manage- rather those variables appearing in extant empirical
ment Journal, Administrative Science Quarterly, research.
Applied Financial Economics, Financial Manage-
ment, Journal of Accounting Research, Journal
of Business, Journal of Business Finance and
Meta-analytic procedure(s)
Accounting, Journal of Finance, Journal of Finan-
cial Economics, Journal of Financial Research, The meta-analyses were conducted consistent with
Journal of Management, Organization Science, and guidelines provided by Hunter and Schmidt (1990;
Strategic Management Journal ), we obtained a see also, Hunter and Schmidt, 1994). Meta-analysis
subset of potentially applicable research reports.
is a statistical research synthesis technique that,
We followed the ‘ancestry’ approach of article
while correcting for various statistical artifacts,
identification (e.g., Cooper, 1998). By working
allows for the aggregation of results across sep-
carefully from the more contemporary references,
arate studies to obtain an estimate of the true
tracking the references on which the articles relied,
relationship between two variables in the popu-
and iteratively continuing this process, it is possi-
lation. Observed zero-order correlations between
ble to determine a set of common early references
with no published predecessors. Relevant, pub- the variables of interest are weighted by the sam-
lished empirical studies were identified beginning ple size of the study in order to calculate the mean
in 1921 and continuing through September 2002. weighted correlation (r) across all of the studies
The search process yielded 93 empirical stud- involved in the analysis. The standard deviation
ies with 852 effect sizes (i.e., germane bivariate of the observed correlations is then calculated to
correlations) with a combined n size of 206,910.4 estimate their variability. Total variability across
This n size is derived from adding the number studies is comprised of the true population varia-
of companies on which each of the 93 studies tion, variation due to sampling error, and variation
relied. For the meta-analyses and moderating anal- due to other artifacts (i.e., reliability and range
yses that follow, the n size is a necessary ele- restriction). Control of these artifacts provides a
ment by which significance distributions are cal- more accurate estimate of the true variability.
culated. The relatively large sample-to-study ratio To control for such artifacts, we relied on
results from research commonly relying on mul- Comprehensive Meta-Analysis (Borenstein, 1997),
tiple operationalizations of financial performance a software package that employs Hunter and
(e.g., abnormal returns with multiple event win- Schmidt’s (1990) artifact distribution formulae.
dows, return on assets (ROA), return on equity While other meta-analyses in strategic manage-
ment (e.g., Boyd, 1991; Capon, Farley, and
4
The list of studies included in our meta-analyses is available Hoenig, 1990; Rhoades, Rechner, and Sundara-
from the authors upon request. Published research examining murthy, 2000; Schwenk and Shrader, 1993) have
M&A activity over 74 years is included in our meta-analyses. treated observed (i.e., not latent) variables as if
A potential concern is whether results differ over time. The
separation of M&A research by time period is difficult because they were without error (i.e., reliability of 1.0), we
a typical M&A study relies on many years of data (in our case, have opted for a more conservative 0.80 reliability
for example, among the longer periods were 1962–79, 1970–90, estimate (e.g., Dalton et al., 1998, 1999).5
1980–92). The challenge in performing subsample analysis,
then, is to find studies with independent time periods, relying
on the same dependent variable and the same event window.
There was one opportunity where our data met those criteria: the 5
abnormal returns for acquiring firms with the Days 1–5 event We do not mean to appear critical about others’ choice of
window. We separated these data into pre-1980 and post-1980 reliability level (use of a reliability value less than one is merely
periods and the estimated r for the pre-1980 period was 0.073, more conservative). In the entire database (852 effect sizes)
while r for the post-1980 period was 0.069. The difference in on which we relied for this meta-analysis, the independent and
R 2 for these two estimates is only 0.0005. As such, it appears financial performance variables were treated as observed in every
that the difference in time frame is inconsequential. This result case. It is apparent that the empirical work in this area relies on
is consistent with prior research that has consistently shown, independent and performance variables as observed, and error
over time, that the average abnormal return of acquiring firms is free. Lowering the reliability level, however, is conservative and
around zero (e.g., Datta et al., 1992; Ravenscraft and Scherer; helps address concerns about the potential existence and impact
1987). of subsamples on our analyses.

Copyright  2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 25: 187–200 (2004)
192 D. R. King et al.

RESULTS Table 1 illustrates the performance of the acquiring

firm over several event windows. Only at Day 0 are
Table 1 provides the results of separate meta- the abnormal returns for acquiring firms positive
analyses on each row for specific variables re- (r = 0.09) and significant. Notably, the difference
flected in the literature on M&A activity and finan- between Day 0 abnormal returns for acquired firms
cial performance.6 To illustrate these results in and acquiring firms is substantial, as reflected in
a traditional meta-analytical data presentation, it the population r estimates of 0.70 vs. 0.09.
would be necessary to create a multi-page inven- The remaining entries in Table 1 illustrate the
tory. Instead, we have constructed a meta-analytic performance estimates of acquiring firms over a
corrected r matrix (Table 1) (Dalton et al., 2003). series of event windows (Days 1–5, Days 6–21,
The cell entries are meta-analytic corrected r pop- Days 22–180, Days 181 to 3 years, and greater
ulation estimates. Consider the first row entry in than 3 years). As shown, after the Days 1–5
Table 1: for acquired firms at the time their acqui- event window, all of the ‘abnormal returns’ results
sition is announced (Day 0), the best estimate for the acquiring firms are negative. Table 1 also
of the actual population correlation for abnormal includes results for an acquiring firm’s ROA, ROE,
(stock) returns is 0.70. The number of studies and ROS performance; all of these results are
relied on for this calculation is 33, reflecting a total either insignificant or negative. Collectively, these
sample size of 5060. A subsequent section dis- results imply that anticipated acquisition synergies
cusses a primary contribution of the present paper: are not realized by acquiring firms.7 That is, M&A
evidence of potential moderating variable(s). activity does not create superior post-acquisition
Notice that Table 1 includes only one event win- performance for acquiring firms and is consistent
dow entry for ‘acquired firms,’ sometimes referred with the non-value-maximizing arguments often
to as ‘target’ firms, this at Day 0, or the day of the
merger announcement. Additional event windows
7
are not included for acquired firms, because at The data on which we rely for the results illustrated in Table 1
are largely comprised of U.S. firms. There are, however, some
some point after a merger announcement acquired exceptions. Accordingly, we analyzed these data in two ways.
firms no longer exist independently. The balance of The results reported in Table 1 are the results for our entire
sample. We also separately tested these data while excluding
the international data. With one exception, the differences are
6 not consequential. For acquired firms’ abnormal returns at day
The performance variables noted in Table 1 reflect those on
which the germane studies rely. There are other indicators of 0, the estimated population r increased from 0.70 to 0.76. For
financial performance on which M&A researchers have relied acquiring firms across all event windows, the differences are of
(e.g., cash flow/sales, income growth, profitability, Jensen’s no practical significance (day 0, no change; days 1–5, no change;
alpha, sales growth, Tobin’s Q). None of these reach the min- days 6–21, no change; days 22–180, no change; greater than
imum number of samples (3) to be included in the table (see 180 days to 3 years, changed from −0.10 to −0.11; greater than
Dalton et al., 2003). 3 years, changed from −0.07 to −0.08).

Table 1. Meta-analyses of financial performance for acquired and acquiring firmsa

Acquired/acquiring Financial Event Estimated Number of Sample Moderation

firms performance window population r studies size indicated
variable

Acquired firms Abnormal returns Day 0 0.70∗∗∗ 33 5,060 Yes

Acquiring firms Abnormal returns Day 0 0.09∗∗∗ 127 28,016 Yes
Acquiring firms Abnormal returns Days 1–5 0.01 114 19,269 Yes
Acquiring firms Abnormal returns Days 6–21 −0.02 54 8,548 Yes
Acquiring firms Abnormal returns Days 22–180 −0.06∗∗∗ 64 5,698 Yes
Acquiring firms Abnormal returns >180 days–3 years −0.10∗∗∗ 103 25,205 Yes
Acquiring firms Abnormal returns >3 years −0.07∗∗∗ 26 5,966 Yes
Acquiring firms ROA 1 year −0.09∗∗∗ 9 1,960 Yes
Acquiring firms ROA 3 years 0.02 20 29,050 No
Acquiring firms ROE 1 year or longer −0.02 14 1,790 No
Acquiring firms ROS 1 year of longer −0.03 9 14,660 Yes

a
Each row represents the results of separate meta-analysis.
∗
p < 0.05; ∗∗ p < 0.01; ∗∗∗ p < 0.001

Copyright  2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 25: 187–200 (2004)
 Meta-analyses of Post-acquisition Performance 193

advanced to explain M&A activity (e.g., Hayward sampling error accounts for less than 75 percent of
and Hambrick, 1997; Kroll et al., 1997). the observed variability. It has also been suggested
that 90 percent credibility intervals larger than
0.11 imply the presence of subgroups (Kowlowsky
Moderation
and Sagie, 1993). To warrant a ‘Yes’ indication
When used in a regression analysis format, moder- in Table 1 for the ‘Moderation indicated’ column,
ation tests involve the use of multiplicative terms both of these guidelines must have been met. It
to determine whether the marginal variances pro- should be noted that sample variance does not
vide information beyond the individual elements. impact population value estimates, but has the
The analog for this in meta-analysis is accom- conservative impact of making significant results
plished through establishing and comparing sub- less likely to be found (Griffiths et al., 1993).
groups. Separate meta-analyses are conducted for Table 1 illustrates that the observed variance for
these subgroups and the population r estimated most of the estimated rs is greater than would be
for each subgroup. A critical ratio test then is anticipated from error alone. The M&A literature
used to determine if the population rs are statisti- provides a host of variables that have been sug-
cally different. Thus, the term ‘moderator’ is used gested to moderate post-acquisition financial per-
interchangeably with ‘subgroup’ in meta-analysis formance. Among those variables are whether the
literature. acquisition was hostile, pre-merger performance
There is evidence of potential moderation for for both acquired and acquiring firms, acquisition
many of the event windows. Potential moderation premium paid, horizontal/vertical merger, regu-
of an estimated r is indicated when the variability lated/unregulated, acquisition experience, method
in an effect size is larger than would be antici- of payment (cash/equity), related/unrelated, rela-
pated from sampling error alone, suggesting that tive size of firms, complementary firm resources,
observed correlations do not estimate a common and whether the acquiring firm is a conglomer-
population (e.g., Cooper, 1998; Lipsey and Wilson, ate. As with the performance variables, we have
2001). Consider, for example, two meta-analytical not selected a subset of these variables for testing
results. One has an estimated r near zero and very based on our preferences. Instead, we report those
little variance; the other also has an estimated r of variables on which extant studies have routinely
near zero, but with much larger variance. In the relied.10 Table 2 provides separate meta-analytical
first case, one would conclude that there is no evi- results for abnormal returns for the four vari-
dence of a relationship between the variables of ables—conglomerate acquisitions, related acqui-
interest and there is no evidence of moderation. In sitions, method of payment (cash vs. equity) for
the second, we also conclude that there is no rela- acquisitions, and whether acquiring firms had prior
tionship, but there may be a moderating influence acquisition experience—examined in a sufficient
on the relationship.8 number of studies to allow cumulating results
One approach to determining the likely presence using meta-analysis.11
of moderators is provided by Hunter and Schmidt With a single exception, the estimated popula-
(1990), who suggest that the potential presence tion correlations (rs) between the variables and
of subgroups,9 or heterogeneity, is likely if the post-acquisition financial performance (abnormal
returns, as indicated) are not statistically signifi-
8
cant. The one statistically significant result is the
Consider a simple case with four effect sizes: 0.02, 0.02, 0.00,
and −0.01. In this case the estimated r is very near zero and
there is very little variance. Another case has effect sizes of 0.4, establishing subgroups. Separate meta-analyses are conducted
0.4, −0.4, and −0.4. Here again, the estimated r would be zero for the subgroups. An estimate of the population r is calculated
(we will assume that the sample sizes for the effect sizes are for each. Then, a critical ratio test is used to determine if the
the same) and the variance is very high. In this case, one could population rs are statistically different.
reasonably ask what is moderating this relationship. Why would 10
To be included in the analyses, a given variable would have
we observe high positive effect sizes in some studies and high to be included in a minimum of three samples (see Dalton
negative for others? et al., 2003). In addition, the minimum of three effect sizes must
9
The interchangeable use of ‘subgroup’ and ‘moderator’ in meta- be derived from three independent studies. Information about
analysis literature can lead to some confusion. A moderator is the same study population should contribute only once to the
often operationalized as a multiplicative variable. In a regres- summary estimate of an effect (e.g., Petitti, 2000).
11
sion format, one determines if the multiplicative term provides All the studies included in the meta-analyses of the moderating
marginal explanatory power above that provided by its elements. variables (Table 2) rely on studies relying entirely on samples
The analog for this in meta-analysis is accomplished through of U.S. firms.

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 194
D. R. King et al.

Copyright  2003 John Wiley & Sons, Ltd.

Table 2. Meta-analyses of potential moderating variablesa

Acquired/acquiring Financial Moderating Event Estimated Number Sample Moderation

firms dependent variable window population of size indicated
variable r studies

Acquiring firms Abnormal returns Conglomerates Day 0 0.07 8 713 No

Acquiring firms Abnormal returns Conglomerates 1–60 months −0.10∗∗∗ 14 3222 No
Acquiring firms Abnormal returns Related acquisitions Day 0 0.00 13 2191 No
Acquiring firms Abnormal returns Related acquisitions 1–60 months 0.05 6 455 No
Acquiring firms Abnormal returns Method of payment (cash/equity) Day 0 0.01 22 3118 No
Acquiring firms Abnormal returns Method of payment (cash/equity) 1–16 days −0.01 24 4207 No
Acquiring firms Abnormal returns Prior acquisition experience Day 0 0.02 7 1399 No

a
Each row represents the results of separate meta-analysis.
∗
p < 0.05; ∗∗ p < 0.01; ∗∗∗ p < 0.001

Strat. Mgmt. J., 25: 187–200 (2004)

 Meta-analyses of Post-acquisition Performance 195

population r of −0.10 (p < 0.001) for conglom- and accounting returns (ROA, ROE, and ROS) and
erate mergers with a 1- to 60-month event win- indicates that expected synergies from the day of
dow. This suggests that conglomerate acquisitions a merger announcement are not subsequently real-
demonstrate negative abnormal returns over that ized by acquiring firms. A clear implication of this
period. This result, however, does not demonstrate set of findings for acquired firm shareholders is that
that acquisitions by a conglomerate firm mod- they should take the windfalls typically afforded by
erate the level of abnormal returns. Notice that M&A announcements. That is, if given a choice,
results in Table 1 for event windows Days 22–180, investors with an equity stake in an acquired firm
>180 days to 3 years, and >3 years are similar should take cash for their investment. If equity is
to the conglomerate 1- to 60-month event win- received in lieu of cash, then investors in acquired
dow in terms of their estimated r values (r = firms should cash out their holdings, because, on
−0.08, −0.10, and −0.07, respectfully). This sug- average, continuing to hold equity in an acquiring
gests that conglomerate firms pursuing acquisi- firm will lead to significantly negative abnormal
tions perform no differently than all firms pursuing returns beginning 22 days after an acquisition is
acquisitions under similar event windows.12 Thus, announced.
while moderation is present in studies that have Our results lead to a strong conclusion that the
explored the post-acquisition performance of con- true population relationship between the presence
glomerates, the variable ‘conglomerate firms’ does of M&A activity and the performance of acquir-
not capture this moderating effect. Rather, unob- ing firms is very near zero or negative beyond the
served variables within the pertinent study samples day a merger or acquisition is announced. Quite
account for the indicated moderating effect. Our simply, we find no evidence that acquisitions, on
finding that method of payment does not impact average, improve the financial performance (e.g.,
post-acquisition performance conflicts with Datta abnormal returns or accounting performance) of
et al. (1992). Our results, however, come from a acquiring firms after the day completed acquisi-
larger sample (1790 to 29,050 vs. 409 observa- tions are announced. Instead, we find that acquisi-
tions) and more than one post-acquisition event tions either have no significant effect or a modest
window. negative effect on an acquiring firm’s financial per-
formance in the post-announcement period. The
large number of studies, effect sizes, and total sam-
DISCUSSION ple on which our analyses are based underscore
these conclusions.
Meta-analysis is an effective means of establishing
Another methodological perspective that further
the best estimate for a true population relation-
underscores the robustness of the current results,
ship based on multiple studies. For our analyses,
consistent with Lykken’s (1968) classic formula-
the results are clear. Both acquired and acquir-
tion, is that the included studies amount to an
ing firms realize positive abnormal returns on the
extensive series of constructive replications. The
day of an announcement (Day = 0). This suggests
the presence of an initial expectation that M&A studies on which we relied for these meta-analyses
activity will create longer-term synergy. The Day are essentially a series of samples drawn from a
0 returns for acquired firms are extremely high discrete population, with replacement. Given the
(r = 0.70), while the returns over the same period range of sample sizes for our individual meta-
for acquiring firms are much lower (r = 0.09). The analyses (i.e., 1790 to 29,050 (see Table 1)), it is
returns for acquiring firms in subsequent event certain that most of these firms have been repeat-
windows (Day 1 and later) are either insignifi- edly used to test propositions about M&A activity.
cant or negative. This is true for separate meta- It is true, of course, that not all of the studies
analyses of both market returns (abnormal returns) repeatedly using these firms were identical in their
designs or in the specific variables of interest. Still,
12
the inferential logic that can be brought to bear
This can be formally demonstrated with a critical ratio test that
determines whether two estimated rs are, in fact, statistically in an aggregation of these studies is extremely
different. The critical ratio is a significance distribution with robust.13
essentially the same character as a z-score. In this case, the
critical ratio is 0.78. Accordingly, the abnormal returns for
13
conglomerate firms are not different from all firms over the same Our results are analogous to a non-parametric, chi-square test
event window. based on a count showing that a preponderance of studies finds

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196 D. R. King et al.

Thus, after decades of research the overwhelm- research methods and theory may be needed. Man-
ing conclusion must be that M&A activity, on agerial implications are also suggested.
average, does not positively contribute to an ac-
quiring firm’s performance. This may lead one to
conclude, for example, that acquisition is not the Methodological implications
best means by which to access and profit from
valuable resources existing in other, external busi- From the standpoint of research methods, three
nesses. Research suggests, however, that alternate areas of improvement are suggested based on our
modes of appropriating others’ valuable resources, study findings. First, most post-acquisition per-
such as licensing and alliances, are also prob- formance research has only employed stock mar-
lematic (e.g., Inkpen and Beamish, 1997; Olson, ket event studies, thus ignoring M&A effects on
1990; Pisano, 1990; Singh, 1997; Stringer, 2000; other potentially relevant dimensions of firm per-
Teece, 1986). Moreover, improving firm perfor- formance. The short-term nature of most event
mance through internal, organic growth has his- studies may not fully capture anticipated benefits
torically proven to be a difficult challenge (see from an acquisition due to information asymme-
Block and MacMillan, 1993). Thus, while acqui- tries (Barney, 1988; Hitt et al., 1998). The cur-
sitions may not have a strong and positive main rent study, however, revealed that post-acquisition
effect on firm financial performance, they may performance effects are absent even under longer
be no more difficult to successfully execute than event windows. Additionally, M&A effects on firm
other alternative strategies for business growth and financial performance were shown to be either
development. What is clearly needed is a bet- insignificant or negative when accounting mea-
sures of an acquiring firm’s financial performance
ter understanding of the conditions under which
were examined. This may be a reflection of limita-
acquisitions make sense as a path to superior per-
tions with accounting measures (see Chakravarthy,
formance. It is generally conceded, for example,
1986) or the simple fact that not enough studies
that acquisitions offer faster access to resources
have used accounting measures. For example, there
than either internal development (Capron, 1999) or
were not enough studies in the extant research
alliances (Das and Teng, 1998), and greater control
pool that included accounting measures to test the
than either licensing or alliances. The identification
impact of moderating variables on the performance
of the factors in the acquisition context that result
of acquiring firms. In short, multiple measures
in superior post-acquisition performance—i.e., the
of firm performance should be employed in post-
moderators—is, however, another matter.
acquisition performance research in order to better
Ideally, the conditions under which acquisi-
document the complete performance implications
tions will be associated with superior performance
of M&A activity.
would have been revealed in our meta-analyses.
Second, there is very little overlap across stud-
Our results indicated that post-acquisition perfor-
ies in the variables used to explain post-acquisition
mance is moderated, but by unspecified variables.
performance. ‘New’ effects are characteristically
Unfortunately, when the impact of the four vari-
sought over replication of known effects, so knowl-
ables whose frequency in the literature allowed
edge accumulation has been slower than might be
for a closer examination was assessed, no signifi-
expected given the high level of research activity
cant effects on post-acquisition performance were
in the M&A area. Importantly, because research
found. Thus, existing empirical research has not
variables of demonstrated importance are regularly
clearly and repeatedly identified those variables
excluded from M&A studies, underspecification of
that impact an acquiring firm’s performance. An
research models (see Griffiths et al., 1993) may
implication of the preceding major findings—i.e.,
represent the norm in M&A studies. Future M&A
that M&A activity does not improve firm perfor-
researchers would be well advised to build on past
mance, and that no post-acquisition performance
research models and not simply create new models.
effect exists for moderator variables that have been
Third, secondary data have been used to con-
repeatedly studied—is that changes to both M&A
struct the vast majority of variables examined
in M&A research as possible predictors of post-
an insignificant or negative impact of a merger on an acquiring acquisition performance. This leads one to wonder
firm’s performance. whether data relevance has been sacrificed in favor
Copyright  2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 25: 187–200 (2004)
 Meta-analyses of Post-acquisition Performance 197

of data availability in the creation of research mod- results suggest that complementary resources may
els. The current meta-analysis failed to uncover help explain observed acquisition activity and pre-
even a single moderator of post-acquisition perfor- dict post-acquisition performance (Barney, 1988;
mance whose significant effect has been replicated Capron et al., 1998; Capron and Pistre, 2002; King
across the established minimum of three stud- et al., 2003).
ies. Nonetheless, statistical tests of post-acquisition The failure of the current meta-analyses to reveal
performance variability strongly suggest that mod- any sustained positive effect of M&A activity
erating effects are present. Researchers simply may on post-acquisition performance also suggests that
not be looking at the ‘right’ set of variables as nonfinancial motives may be under-represented in
predictors of post-acquisition performance. theory and research that seek to explain M&A
activity. If M&A activity is motivated by factors
other than financial performance, it should not be
Theoretical implications
surprising that acquisitions on average do not lead
Our research shows a clear need for further to higher financial performance. This is not to
model development to identify antecedents that can suggest that we believe the evidence of acquisi-
help predict post-acquisition performance. Schol- tions not improving financial performance neces-
ars have recognized that no theoretical framework sarily results from managerial opportunism. If that
currently explains the relationship between acqui- were the case, then increased reliance on corpo-
sition antecedents and subsequent performance rate governance mechanisms over the past decades
(Hitt et al., 1998; Hoskisson et al., 1993; Sirower, should have led to a decrease in M&A activity,
1997). Still, the wide variance surrounding the not an increase. We suggest that alternate and less
association between M&A activity and subsequent menacing motivations, such as the use of acqui-
performance suggests that subgroups of firms do sitions to manage environmental or technological
experience significant, positive returns from such uncertainties, or the pursuit of growth to decrease
activity. Existing models have failed to clearly organizational vulnerabilities, offer alternate, non-
identify these subgroups. financial motives for M&A activity. Additional
Of the available options, complementary theorizing on nonfinancial motives for M&A activ-
resources may be a promising theoretical founda- ity is encouraged.
tion for continued M&A research, and is recog-
nized as an under-researched topic (Harrison et al.,
Managerial implications
2001; King, Covin, and Hegarty, 2003). Comple-
mentary resources imply that a positive interac- Two primary managerial implications are sug-
tion effect exists (Milgrom and Roberts, 1995) gested by our findings. First, as a means
between acquired and acquiring firm resources. to reap the financial benefits often associated
If increased post-acquisition performance requires with large firm size (e.g., economies of scale,
combining complementary acquired and acquir- economies of scope), external growth through
ing firm resources in new ways, then a multi- M&A activity may be a highly speculative
plicative, or interaction, effect between acquired undertaking with much less predictable results
and acquiring firm resources is implied. A multi- than might be assumed. Given the difficulties
plicative relationship between acquired and acquir- managers have traditionally faced in the pur-
ing firm resources could provide the framework suit of internal, organic growth (e.g., inadequate
to explain synergy, or the concept that the sum innovation management processes, ‘newstream-
of merging two firms is greater than their indi- to-mainstream’ business integration difficulties),
vidual parts. Examining interactions also meets external growth through M&A activity may seem
an expressed need in M&A research (Hitt et al., like an easy and obvious solution. After all, with
1998; Hoskisson and Hitt, 1990) and would allow the acquisition of established companies, acquir-
examination of post-acquisition performance rela- ers effectively circumvent much of the challenge
tionships beyond current theories, founded largely and uncertainty surrounding the internal, organic
in finance, that typically focus on direct effects. growth process. Not surprisingly, anecdotal evi-
Although research on complementary resources dence suggests that external growth may be oper-
did not exist in quantities sufficient for the present ating as a substitute for internal growth (see,
meta-analyses, both theory and initial empirical for example, Hitt et al., 1991; Stringer, 2000).
Copyright  2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 25: 187–200 (2004)
198 D. R. King et al.

Appropriating value from M&A activity, however, of the difficulty of research in this area, or they
presents its own set of challenges that may be no could be interpreted as evidence of the significant
less significant than those associated with inter- opportunities remaining for knowledge creation.
nal growth. Until researchers can provide man- Given the high levels of observed M&A activity
agers better guidance on how value can be cre- and present indications of unidentified moderator
ated through M&A activity, the apparent bias for variables, we hope researchers embrace the latter
external growth over internal growth likely will interpretation.
continue to result in disappointing performance
outcomes.
Second, and related to the preceding point, man- DISCLAIMER
agers are advised to be as explicit as possible about
how, why, and where acquisitions can be rea- The views expressed in this article are those of
sonably expected to strengthen their firms. Vague the authors and do not reflect the official policy
rationalizations that go no farther than the com- or position of the United States Air Force, Depart-
mon ‘synergy’ argument should be viewed with ment of Defense, or the U.S. government.
skepticism. If managers cannot explain, in clear
and compelling terms, how acquisitions positively
serve the interests of their firms, those acquisitions ACKNOWLEDGEMENTS
will not be consciously managed to best effect.
The present research was supported by Defense
Acquisition University. Additionally, an earlier
CONCLUSION version of this paper was presented at the M&A
Summit held during June 2002 in Calgary, where it
The typical effect of M&A activity on firm perfor- benefited from comments from Asli Arikan, Mag-
mance has been well documented, and, on average, nus Bild, Amy Pablo, Habir Singh, and Mark
M&A activity does not lead to superior finan- Sirower. Finally, we thank Dan Schendel and two
cial performance. In fact, a stronger argument anonymous reviewers for their many insights and
can be made that M&A activity has a modest suggestions.
negative effect on the long-term financial perfor-
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