Opening M&A strategy to investors: Predictors and outcomes of transparency during organizational transition

Angwin, Duncan; Meadows, Maureen and Yakis-Douglas, Basak (2015). Opening M&A strategy to investors: Predictors and outcomes of transparency during organizational transition. In: 35th Strategic Management Society Annual International Conference 2015, 3-6 Oct 2015, Denver, Colorado.

Abstract

Our study theorizes and tests why organizations engage in practices of open strategy and the share-price related outcomes associated with these practices. Drawing from literature on information asymmetry, we suggest that organizations that depart from their existing strategy or deviate from industry norms are more likely to open up their strategy in order to escape negative evaluations by analysts and scrutiny by investors. We further investigate how the stock market responds to these practices of open strategy. In a dataset comprising of a sample of 472 M&A deals and 886 associated corporate voluntary communications over a five-year period, we find that the likelihood of organizations engaging in open strategy practices is associated with the degree to which an organization’s strategy differs from industry norms, but is not associated with how much it varies from its existing one. Regarding organizational outcomes of open strategy, we illustrate that increasing the transparency of M&A strategy to investors through voluntary communications can bring share-price related benefits of up to 2.7 percent, an average of $321 million in market capitalization. Our research contributes to literature on open strategy, information asymmetry, and managing M&A.

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