Investors’ Reactions to Alliance-engendered Acquisition Ambiguity: Evidence from US Technology Deals

We study how, when target firms are engaged in strategic alliances, the ambiguity surrounding an acquisition’s anticipated synergies influences investors’ reactions to announcements of acquisitions. Drawing on behavioral finance research and the resource redeployment literature, we predict that investors’ limited access to the information encoded in the target firms’ alliances and the uncertainty around the redeployability of their embedded resources generate a negative relationship between the number of target alliances and investors’ reactions. We also hypothesize that this negative effect is exacerbated when the alliances involve foreign alliance partners but is attenuated when acquirers are experienced in acquiring targets with alliances. Analysis of a large sample of U.S. technology acquisitions supports all our hypotheses. We contribute to management research by offering a viable explanation of investors’ reactions to the announcement of major corporate events, such as acquisitions, whose structural characteristics deny investors material information about these events’ potential to create value.