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

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Our study theorises and tests why organisations engage in more external transparency as an open strategy practice and the share-price related outcomes associated with these practices. Drawing from literature on information asymmetry, we suggest that organisations 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 more openness in 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 organisations engaging in open strategy practices that contribute to external transparency is associated with the degree to which an organisation's strategy differs from industry norms, but is not associated with how much it varies from its existing one. Regarding organisational outcomes of increased openness in strategy, we illustrate that increasing the transparency of M&A strategy to investors through voluntary communications can bring share-price related benefits. Our research contributes to literature on open strategy, information asymmetry, and managing M&A. (C) 2016 Elsevier Ltd. All rights reserved.
Publisher
ELSEVIER SCI LTD
Issue Date
2017-06
Language
English
Article Type
Article
Citation

Long Range Planning, v.50, no.3, pp.411 - 422

ISSN
0024-6301
DOI
10.1016/j.lrp.2016.06.007
URI
http://hdl.handle.net/10203/224788
Appears in Collection
RIMS Journal Papers
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