International Business Review 29 (2020) 101707

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International Business Review

journal homepage: www.elsevier.com/locate/ibusrev

The stock market performance of exploration-oriented and exploitation- T

oriented cross-border mergers and acquisitions: Evidence from emerging
market enterprises
Zhu Zhanga,*, Marjorie A. Lylesb,c, Changqi Wud,e
a
University of International Business and Economics, No. 10 Huixin East Street, Chaoyang District, Beijing, China, 100029
b
College of Business, Florida International University
c
Kelley School of Business, Indiana University
d
Shandong University, No. 27 Shanda Nanlu, Jinan, Shandong, China, 250100
e
Peking University, No.5 Yiheyuan Road, Haidian District, Beijing, China, 100871

ARTICLE INFO ABSTRACT

Keywords: This study builds on insights from mergers and acquisitions (M&A) studies and the perspective that stock market
Exploration-oriented acquisitions performance is affected by the M&A strategies of firms. Past studies show that acquisitions are an effective way
Exploitation-oriented acquisitions to exploit existing knowledge and explore new possibilities. We argue that stock market performance can be a
Performance response to exploration/exploitation strategies in the context of cross-border M&As by emerging market mul-
Emerging market MNEs
tinationals. Based on cross-border M&A data of Chinese multinationals, we find that exploration-oriented ac-
China
quisitions have worse stock market performance than exploitation-oriented acquisitions. Furthermore, we find
support for our premise that acquiring firms can reduce the risk of exploration-oriented acquisitions by having
more high-discretion slack resources or by maintaining a high level of equity share of the target firm. In addition,
acquiring firms perform better if they conduct exploration-oriented acquisitions in related industries. Our results
contribute to a better understanding of exploration and exploitation in the context of M&As.

1. Introduction
The number of cross-border mergers and acquisitions (M&As) con-
ducted by emerging market multinationals, such as Chinese firms, has
been rising. In 2000, the transaction value of cross-border M&As con-
ducted by Chinese multinational enterprises (MNEs) accounted for less
than 1% of the global cross-border M&A value. However, according to
the 2017 Report on Development of China’s Outward Investment and
Economic Cooperation, the transaction value of cross-border M&As
conducted by Chinese MNEs in 2017 reached 119.62 billion dollars,
second only to the United States, indicating that China is now a key
player in the global market. Therefore, many scholars in strategy and
finance study Chinese cross-border M&As to determine whether they
can create value for those Chinese MNEs and lead them to success.
In previous literature, the performance of acquiring firms is an
important indicator of the performance of M&As. However, research on
acquisition performance has not reached consistent results. Certain
scholars argue that M&As can bring strategic assets to acquiring firms
that can lead to positive return for acquiring firms (e.g., Gubbi, Aulakh,
Ray, Sarkar, & Chittoor, 2010; Humphery-Jenner, Sautner, & Suchard,
2017; Tao, Liu, Gao, & Xia, 2017). However, other scholars obtain
different findings when studying different subsamples of cross-border M
&As. For example, Agrawal, Jaffe, and Mandelker (1992) find that the
stocks of acquiring firms suffer a statistically significant loss of ap-
proximately 10% after an acquisition. Moreover, on the basis of a meta-
analysis, King, Dalton, Daily, and Covin (2004) find no evidence that
acquisitions improve the abnormal returns of acquiring firms after ac-
quisitions are announced. Therefore, inconsistent results regarding the
performance of cross-border M&As by emerging market MNEs are
founded in previous studies.
To deal with the inconsistency, scholars in the fields of global
strategy, economics, and finance investigate acquisition performance
from different perspectives. In the field of international business, many
scholars argue that the performance of cross-border transactions is
largely influenced by external environment. Thus, they focus on
country-level factors, such as cultural distance, national policy, and
institutional environment (Cho & Ahn, 2017; Dikova & Sahib, 2013;
Morosini, Shane, & Singh, 1998).

⁎
Corresponding author.
E-mail addresses: zhuzhang@uibe.edu.cn (Z. Zhang), mlyles@iupui.edu (M.A. Lyles), topdog@gsm.pku.edu.cn (C. Wu).

https://doi.org/10.1016/j.ibusrev.2020.101707
Received 23 November 2018; Received in revised form 10 November 2019; Accepted 22 April 2020
Available online 12 May 2020
0969-5931/ © 2020 Elsevier Ltd. All rights reserved.
Z. Zhang, et al.
Some scholars investigate cross-border M&As from the perspective
of target firms. They find that factors such as the nature of target in-
dustry (Faifman, Ellis, & Golden, 2016), pre-acquisition evaluation of
target firms (Ahammad & Glaister, 2013), initial public offerings of
target firms (Reuer et al., 2012), tangible resources (Buckley, Elia, &
Kafouros, 2014), and ownership structure of target firms (Aybar &
Ficici, 2009) can influence the outcome of cross-border M&As.
However, other scholars focus on M&A transactions from the per-
spective of acquiring firms and attempt to determine the factors that
influence the value creation for the stockholders of acquiring firms.
These scholars find that size (Moeller, Schlingemann, & Stulz, 2004),
acquisition experiences (Hébert, Very, & Beamish, 2005), strategic
considerations (Chen, 2008), and ownership structure (Du & Boateng,
2015; Guo, Clougherty, & Duso, 2016) of acquiring firms have impact
on cross-border M&A outcomes. Among these studies, scholars em-
phasize the importance of knowledge. Firms acquire foreign firms be-
cause they want to obtain certain strategically important knowledge
and assets from target firms. Moreover, those acquiring firms with
abundant experience and knowledge can reduce information asym-
metry, avoid potential risk, and improve learning efficiency, all of
which can lead to improved acquisition performance (Zaheer,
Hernandez, & Banerjee, 2010). However, learning knowledge from
target firm is difficult. Li, Li, and Wang (2016) argue that in the context
of cross-border M&As, strategic asset acquisition not only involves the
exploitation of firms’ existing assets and knowledge but also the transfer
of new knowledge. The latter is more challenging for acquiring firms
because new knowledge is usually embedded in target firms and host
countries.
Considering the importance of knowledge and the challenges of
learning knowledge faced by acquiring firms, many scholars think that
the learning perspective is a good angle from which to study acquisi-
tions. They characterize firms as routine-based systems (e.g., Levitt &
March, 1988), in which experiences can be coded into routines
(knowledge) (Collins, Holcomb, Certo, Hitt, & Lester, 2009). The or-
ganizational learning process can refine existing routines and produce
new routines that in turn can result in competitive advantage and im-
proved performance (Hitt, Dacin, Levitas, Arregle, & Borza, 2000). Such
routines include tacit and explicit knowledge, which help firms in
screening, selecting, executing, and integrating acquisitions (Elango &
Pattnaik, 2011). Certain studies incorporate the element of learning in
understanding the drivers of acquisition activities, but they typically
focus on the role of acquisition experiences (Yang, Lin, & Peng, 2011).
Few studies investigate the roles of exploration and exploitation and
their performance implication in the context of M&As (Phene, Tallman,
& Almeida, 2012; Stettner & Lavie, 2014). Although scholars identify
the difference between exploration and exploitation, they do not clearly
define and carefully analyze exploration- and exploitation-oriented
acquisitions. They also ignore the different performance implications of
exploration- and exploitation-oriented acquisitions (Phene et al., 2012;
Stettner & Lavie, 2014).
Studying the two aspects of organizational learning strategies,
namely, exploration and exploitation, in the context of cross-border M&
As is of great necessity. Scholars find that exploration and exploitation
can positively influence firm performance (Junni, Sarala, Taras, &
Tarba, 2013). Apart from the standard methods of exploration and
exploitation, such as internal R&D, alliances, and joint ventures, ac-
quisitions can also be an effective means of exploration (i.e., developing
new areas of expertise) or exploitation (i.e., reinforcing existing op-
erations and capabilities) (Phene et al., 2012). For example, BOE ac-
quired Hyundai Display Technology Inc. from Hynix Semiconductor to
enter the TFT-LCD production business. This exploration-oriented ac-
quisition provided BOE with a viable way to obtain new technologies
and develop new business areas. However, acquisitions can also be a
way to exploit existing products or businesses. For example, Talkweb
Information System Co Ltd, a software producer in China, acquired GAE
Inc. in 2015. Talkweb wanted to use GAE’s knowledge of the ACG
2
International Business Review 29 (2020) 101707
(animation, comics, and games) market to exploit Talkweb’s existing
anime games and introduce Talkweb’s products to the Japanese market.
Many acquiring firms use cross-border M&As for exploration and ex-
ploitation. Moreover, different types of acquisitions face different dif-
ficulties and have different acquisition performance.
Accordingly, we distinguish between exploration- and exploitation-
oriented acquisitions and investigate their influence on the acquisition
performance of acquiring firms. Exploration-oriented acquisitions focus
on the discovery and development of new technologies, products, or
businesses. Exploitation-oriented acquisitions emphasize existing tech-
nologies, products, or businesses and focus on refinement, production
expansion, and efficiency improvement. Exploration- and exploitation-
oriented acquisitions thus face different difficulties and risks. We find
that acquisition performance also varies between these two orienta-
tions.
Therefore, this study investigates the performance of exploration-
and exploitation-oriented acquisitions. We build a framework by un-
derstanding risk to determine how exploration- and exploitation-or-
iented acquisitions differ. We also evaluate their impacts on the stock
market performance of acquiring firms. Furthermore, we assess firm-
and industry-level moderators that can reduce the level of risk in an
acquisition, thus mitigating the negative effect of exploration-oriented
acquisitions on performance. Results indicate that exploration-oriented
acquisitions have poorer performance than exploitation-oriented ac-
quisitions. However, if acquiring firms have high-discretion slack re-
sources and engage in exploration-oriented acquisitions in related in-
dustries, they can perform better than exploitation-oriented
acquisitions. A high-level control of target firms can also ensure positive
performance in exploration-oriented acquisitions.
This study makes several important contributions. First, we directly
supplement the literature on the antecedents of acquisition perfor-
mance. We distinguish between exploration- and exploitation-oriented
acquisitions and study their different effects on acquisition perfor-
mance. Second, we find that even though stock market reactions to
acquisitions by emerging market MNEs are positive on average, ex-
ploration-oriented acquisitions are not valued by the stockholders of
acquiring firms because they do not always value the risk-taking be-
havior of firms. Third, although exploration-oriented acquisitions often
have poorer performance than exploitation-oriented acquisitions, ac-
quiring firms can still mitigate risks by accumulating additional high-
discretion slack resources, obtaining further control over targets, and
acquiring firms in related industries. Fourth, unlike other studies that
look only at knowledge-intensive industries, we use a sample that in-
cludes cross-border M&As in all industries, thereby enriching the gen-
eralizability of our findings. Finally, this study has practical implica-
tions for managers currently engaged in cross-border M&As with the
aim of new technology and product development.
2. Theory and hypotheses development
2.1. Exploration and exploitation
From March’s seminal work (1991), scholars realize the importance
of exploring new possibilities and exploiting existing knowledge.
Exploration is related to innovation, experimentation, risk-taking, and
increased variance. Scholars find several motives for firms to engage in
exploration, such as competitive intensity, exogenous shocks, appro-
priability regimes, and environmental dynamism (Lavie, Stettner, &
Tushman, 2010). In particular, firms tend to explore when the en-
vironment is uncertain and turbulent, as it renders existing products
and services obsolete and thus requires firms to explore new ones
(Jansen, Van Den Bosch, & Volberda, 2005). However, exploitation is
related to efficiency and productivity improvement, refinement, and
reduced variance (March, 1991; Stettner & Lavie, 2014). Firms focus on
exploitation because they want to improve current processes, conform
to existing demands, and increase short-term returns (Heyden,
Z. Zhang, et al.
Oehmichen, Nichting, & Volberda, 2015). Moreover, other scholars
assert that in certain circumstances, high-level exploration and ex-
ploitation can be achieved (Cao, Gedajlovic, & Zhang, 2009; Simsek,
Heavey, Veiga, & Souder, 2009). Therefore, they define the ability of
organizations to simultaneously pursue exploration and exploitation as
organizational ambidexterity (He & Wong, 2004; Jansen, Van Den
Bosch, & Volberda, 2006).
On the basis of these studies, scholars elaborate these ideas by
considering the role of explorative and exploitative activities in inter-
organizational situations (Grant & Baden-Fuller, 2004; Hernández-
Espallardo, Sánchez-Pérez, & Segovia-López, 2011). Certain scholars
even extend prior work to the international context and emphasize the
role of exploration and exploitation in affecting foreign direct invest-
ment (FDI) (Chen & Yeh, 2012; Fatehi & Englis, 2012). Implementing
international exploration and exploitation strategies can successfully
enable firms compete with other firms and adjust to the ever-changing
international environment smoothly, leading to good global market
performance (Cui, Walsh, & Zou, 2014).
Among these studies, some scholars pay attention to the formation
of international strategic alliances and assert that alliances can help
facilitate learning by accessing new external knowledge (exploration)
and collaboratively leveraging existing knowledge with partners (ex-
ploitation) (Lavie & Rosenkopf, 2006; Rothaermel & Deeds, 2004). By
forming alliances with different partners, firms obtain different
knowledge benefits. Thus, scholars classify strategic alliances to ex-
ploratory and exploitative alliances (Lavie, Kang, & Rosenkopf, 2011;
Yang, Zheng, & Zhao, 2014). They argue that exploratory alliances
enable partners to share tacit knowledge and develop new knowledge,
whereas exploitative alliances permit commercialization and marketing
activities that leverage and combine the existing capabilities of partners
through exchanges of explicit knowledge (Lavie & Rosenkopf, 2006;
Rothaermel, 2001). However, instead of making classification, some
scholars think that the fit between exploration and exploitation is im-
portant, which can benefit the performance of international alliances
(Nielsen & Gudergan, 2012).
In recent studies, scholars find that apart from alliances, acquisi-
tions can also be used to exploit existing businesses and explore new
opportunities. Thus, they extend research to the context of M&As. For
example, Wagner (2011) distinguishes between technology-related and
non-technological acquisitions in the semiconductor industry and finds
that technology-related acquisitions do not hinder exploitative R&D
and only increase explorative R&D. Following Wagner (2011), Phene
et al. (2012) also examine acquisitions in the semiconductor industry
and find the conditions in which acquisitions facilitate the exploitative
and exploratory activities of acquiring firms. Choi and McNamara
(2018) distinguish between the prior exploitation and exploration or-
ientation of acquiring firms and find that different orientations can lead
to different post-acquisition knowledge leverage behaviors. However,
in these studies, scholars pay no attention to performance implications.
In addition, Stettner and Lavie (2014) combine previous studies and
discuss the interplay of tendencies to explore versus exploit via internal
organization and alliance and acquisition modes. However, their re-
search on acquisitions needs improvement, as it focuses on balancing
different modes and does not fully explain the mechanism of each
mode, especially acquisitions.
On the basis of previous literature review, we find that extensive
studies on exploration and exploitation have been conducted. However,
most of these studies are only restricted to high technology industries,
such as semiconductor industry (e.g., Wagner, 2011; Phene et al.,
2012), biotechnology industry (e.g., Gilsing & Nooteboom, 2006;
Stettner & Lavie, 2014), and information and communication tech-
nology industry (e.g., Vasilchenko & Morrish, 2011). Scholars mention
that although doing research in a narrowly defined industry context can
enhance internal validity, the generalizability of the findings is limited
(Vasilchenko & Morrish, 2011). Thus, they suggest subsequent scholars
to conduct research in other industrial settings, which can corroborate
3
International Business Review 29 (2020) 101707
and extend existing research findings (Kim, Song, & Nerkar, 2012; Voss
& Voss, 2013). Moreover, scholars encourage future research to offer
additional insights relating ambidexterity to firm performance and find
additional contingency factors (Voss & Voss, 2013). In addition, re-
garding the context of M&As, scholars have considered exploration and
exploitation at the acquiring-firm level (Choi & McNamara, 2018).
However, they emphasize that the degree of exploitation and explora-
tion can also vary at the acquisition-deal level (Choi & McNamara,
2018; Karim & Mitchell, 2000). Thus, they suggest future studies to
investigate the explorative or exploitative purpose of acquisitions (Choi
& McNamara, 2018).
Therefore, building on previous studies, we collect data of cross-
border M&As in all industries. We further distinguish between ex-
ploration- and exploitation-oriented M&As and identify their perfor-
mance differences. In this study, exploration-oriented acquisitions are
defined as acquisitions that focus on the discovery and development of
new knowledge and technologies. In exploration-oriented acquisitions,
acquiring firms often take ownership of another firm in a remotely
related or totally new business, which requires a shift away from ac-
quirers’ current base of knowledge and capabilities (Lavie & Rosenkopf,
2006). However, exploitation-oriented acquisitions are defined as ac-
quisitions that focus on refinement, production expansion, and effi-
ciency improvement. Therefore, in exploitation-oriented acquisitions,
acquiring firms often choose to acquire target firms that have a close
relationship with their current businesses or operations. Acquiring firms
are thus familiar with target firms and target industry. The aim of ex-
ploitation-oriented acquisition has also been described as organiza-
tional focus, variance reduction, or stability. Therefore, in general,
exploration-oriented acquisitions often face more risks than exploita-
tion-oriented acquisitions.
In this study, we also distinguish between unrelated/related ac-
quisition and exploration/exploitation-oriented acquisition. We argue
that these two sets of concepts are related but different because they are
at different levels. Compared with exploration/exploitation, the con-
cept of relatedness is more macro-level and focuses on business unit,
industry, market, or even institutional environment relatedness (Barai
& Mohanty, 2014; Davis, Robinson, Pearce, & Park, 1992). Previous
studies define relatedness on the basis of the products and services of-
fered, inputs, organization of operations, and shared cognitive frame-
works (Fan & Lang, 2000; Schildt, Maula, & Keil, 2005). Following
these studies, we define relatedness as an industry-level concept.
However, in our examination of acquisition orientation, we find that
the focus of exploration and exploitation relates to knowledge, cap-
ability, and learning. For example, exploration requires firms to gen-
erate new knowledge or novel recombinations of knowledge. Such
knowledge may or may not lead to new products or businesses. This
finding is in line with the capability-based perspective. When selecting
targets, acquiring firms often use the capability perspective to judge the
value of target firms (Karim & Mitchell, 2000; Kaul & Wu, 2016; Ranft &
Lord, 2002). Acquiring firms can select target firms with capabilities
and knowledge that can be used in existing contexts or acquire target
firms with new capabilities and knowledge that can be used in a new
context. Therefore, in this situation, factors such as capabilities and
knowledge are emphasized by acquiring firms, which are best examined
within the framework of exploration and exploitation.
Thus, we investigate exploration and exploitation at the level of
knowledge and capabilities and study relatedness at the level of in-
dustry. These concepts are different but related because the level of
industry relatedness can influence exploratory/exploitative learning
(Schildt et al., 2005). To gain further understanding of exploration and
exploitation, we include relatedness as an important moderator.
2.2. Stock market performance of M&As
In previous literature, scholars measure the success and perfor-
mance of M&As in divergent ways. Some scholars think financial
Z. Zhang, et al. International Business Review 29 (2020) 101707

returns, such as return on assets (ROA) or return on equity (ROE), are

Effect of CAR
appropriate measures because they represent how effective manage-
ment can generate after-tax profits by using firms’ available assets
(Porrini, 2004). However, other scholars reveal many problems with

+
+
+

+
–

–
/
accounting performance, such as the possible manipulation of ac-
counting returns and different accounting policies adopted by different

(–1,0), (–1,+1), (–2,+1), (–5,+1), (–5,+5), (–10,+5),

firms (Cording, Christmann, & King, 2008). Moreover, firms periodi-
cally report their financial performance, and a time gap often exists

(–1,0), (0,+1), (–1,+1), (–2,+2), (–5,+5) CAR

between the focal M&A transaction and the next available accounting
results. During this period, many confounding factors and extraneous

(–1,+1), (–1,+3), (–2,+2), (–5,+5) CAR

(0,+1), (–1,+1), (–2,+2), (–5,+5) CAR
events may happen, both of which can influence the accounting per-
formance (Kim & Finkelstein, 2009). Thus, many scholars think that
stock market reactions, such as cumulative abnormal return (CAR), is

(–1,+1), (–2,+2), (–5,+5) CAR

(–10,+10) Standardized CAR
an accurate measure. The reason is that the importance of M&A
transactions can be accessed by examining the price changes during the

(–1,+1), (–20,+20) CAR

Dependent variable(s)
period in which M&As occur (Finkelstein & Haleblian, 2002; Zaheer
et al., 2010). In addition, using CAR to measure M&A performance is
widely accepted in previous literature (Aybar & Ficici, 2009; Cording

(–5,+5) CAR

(–5,+5) CAR

(–3,+1) CAR
(–1,0) CAR
et al., 2008; Gaur, Malhotra, & Zhu, 2013; Kroll, Wright, Toombs, &
Leavell, 1997; McDonald, Westphal, & Graebner, 2008).
Following many prior studies, short-term stock market reaction is
adopted to measure M&A performance in this study. Market expecta-

Researc period
tions are almost fully formed by the announcement date of M&As with

2000−2004

1991−2004

2000−2007
2000−2008
1998−2009

2000−2010
2000−2008
1998−2011

2000−2011

2000−2012
wealth effects being insignificant around the completion date (Datta,
Pinches, & Narayanan, 1992). A long-time window cannot exclude
confounding effects and may dilute the possibility in finding any sig-
nificant evidence (Tao et al., 2017). Moreover, many previous studies

Ownership structure, cultural distance, institutional distance, foreign

Ownership structure, corporate control, internal control mechanisms
provide ample evidence that short-term CAR correlates with long-term

Developed target country, economic distance, institutional distance

Cultural distance, acquirer size, experience, financial advisor, same

Geographical diversification, underperforming targets, payment of
firm performance (McNamara, Haleblian, & Dykes, 2008). Therefore,
the stock market can successfully predict the future profitability of M&
Firm characteristics, industry-specific factors, target country
As at the time of announcement (Finkelstein & Haleblian, 2002).
However, findings regarding the short-term stock market perfor-

Industry, developed target country, cultural distance

mance of M&As conducted by MNEs from emerging markets vary. On Government ownership, environmental complexity
the basis of Chinese data, certain scholars find that M&As can create
value for stockholders (e.g., Boateng, Qian, & Tianle, 2008; Ning, Kuo,
Strange, & Wang, 2014; Du & Boateng, 2015; Li et al., 2016), whereas
others obtain contradictory findings (e.g., Chen & Young, 2010). Re-

Political risk, ownership structure

cash, government-instigated M&A

search in other emerging markets, such as India and Latin America, also
Four kinds of strategic motives

show inconsistent results. Nicholson and Salaber (2013) find that In-
Key explanatory variables

dian and Chinese acquiring firms can benefit from cross-border M&As.
A summary of literature on short-term stock market performance in emerging markets.

Gubbi et al. (2010) reveal that cross-border M&As lead to positive re-
exchange reforms

turn. However, when examining M&As associated with 58 emerging

characteristics

market MNEs, Aybar and Ficici (2009) claim that M&As do not create
value and even point to value destruction for more than half of the
industry

analyzed M&A transactions. Goddard, Molyneux, and Zhou (2012)

collect data from emerging markets in Asia and Latin America and find
that M&As can only create shareholder value for target firms. Acquiring
Nicholson and Salaber (2013)
Goddard, Molyneux, & Zhou

firms do not lose shareholder value. A summary of literature on short-

Chen and Young (2010)

term stock market performance in emerging markets is presented in

Boateng, Qian, & Tianle

Aybar and Ficici (2009)

Du and Boateng (2015)

Li, Li, & Wang (2016)

Table 1.
Gubbi et al. (2010)

Ning et al. (2014)

Tao et al. (2017)

Among those studies that investigate the antecedents of short-term

stock market performance, scholars emphasize the role of country-level
Author(s)

difference, such as institutional distance (Du & Boateng, 2015), eco-

(2008)

(2012)

nomic distance (Gubbi et al., 2010), and cultural distance (Nicholson &
Salaber, 2013; Li et al., 2016). They also point out that ownership
structure is an important influential factor (Chen & Young, 2010; Du &
Emerging markets in Asia and Latin

Boateng, 2015; Ning et al., 2014; Tao et al., 2017). Hassan, Ghauri, and
Mayrhofer (2018) argue that the outcome of M&As can be accurately
measured by aligning it with the motives defined by acquiring firms.
Although Boateng, Qian, and Tianle (2008) consider the strategic mo-
tives of M&As, a small sample data (27 deals) may limit the general-
India and China

izability of their findings. Therefore, following previous literature

America

(Hassan, Ghauri, & Mayrhofer, 2018), we distinguish between two

market
Emerging

kinds of acquisition motives, that is, exploration- and exploitation-or-

Country
Table 1

China

China

China
China

China

China
India

iented, and study their performance difference.

4
Z. Zhang, et al.
2.3. Exploration-/exploitation-oriented acquisition and acquisition
performance
Scholars recognize that acquisitions with different motives often
have different performance implications. We argue that exploration-
and exploitation-oriented acquisitions have differing effects on acqui-
sition performance. First, in exploration-oriented acquisitions, firms are
often aimed at acquiring new knowledge, technical skills, or products,
which allow them to move into a new technology domain (Choi &
McNamara, 2018). However, introducing new technologies or even
entering a new technology domain may be very uncertain (Yayavaram
& Chen, 2015). Such an uncertainty may increase the chance that the
real value of transactions can be misestimated, and investors’ valuation
of the profitability of acquiring firms can be less accurate. However,
exploitation often relates to avoiding risk and uncertainty (Lavie et al.,
2010; March, 1991). In exploitation-oriented acquisitions, acquiring
firms only need to use knowledge that is closely related to its pre-
existing knowledge base. Thus, acquiring firms can better deal with
firm- and industry-level risks and uncertainties. Such firms can also
effectively manage target firms, thereby leading to acquiring firms’
good performance.
Second, in exploration-oriented acquisitions, acquiring firms tend to
learn tacit knowledge from target firms. However, in exploitation-or-
iented acquisitions, such learning typically involves explicit knowledge.
Compared with explicit knowledge, tacit knowledge is embedded in
organizational practices, procedures, routines, processes, and values;
thus, identifying, evaluating, transferring, and absorbing tacit knowl-
edge is difficult (Wang, Tong, & Koh, 2004). Park, Vertinsky, and
Becerra (2015) also argue that the transfer of tacit knowledge to foreign
partners is inherently risky and may require related absorptive capa-
city. However, developing absorptive capacity is not an easy job. Thus,
we further argue that firms may meet with more difficulties when
identifying, transferring, and absorbing tacit knowledge from target
firms to acquiring firms in exploration-oriented acquisitions. The value
creation of exploration-oriented acquisitions can also be more un-
certain.
Third, during the post-acquisition process, exploration-oriented ac-
quisitions often face high risks (Choi & McNamara, 2018), which in-
fluence subsequent acquisition performance. In exploration-oriented
acquisitions, managers in acquiring firms not only need to address
common issues, such as human, capability, and resource integration
risks, but also structural, product, and business integration risks.
Among these factors, the most severe challenge in exploration-oriented
acquisitions is the need to acquire and absorb new technologies from
target firms or even create new products. The high-risk nature of ex-
ploration-oriented acquisitions makes the outcome of adopting new
technologies or offering new products unpredictable, negatively af-
fecting short-term acquisition performance.
Fourth, in exploration-oriented acquisitions, acquiring firms often
want to acquire new technologies from foreign targets by which ac-
quiring firms hope to develop innovative products. However, from
making a strategic decision of focusing on developing innovative pro-
ducts to the actual product innovation is a long process. Firms must
invest sufficient resources and efforts to support the product innovation
process. Firms that operate in the turbulent environment of emerging
markets (such as China) must deal with many problems, such as in-
adequate technology, weak skills and knowledge, and customers’ re-
sistance to unfamiliar new products (Bond & Houston, 2003). Thus, in
the short term, the negative effects of focusing on the development of
new products or processes and exploration of new possibilities (a
breakthrough focus) may outweigh their positive effects, resulting in
decline or stagnant innovation performance (Zhang, Di Benedetto, &
Hoenig, 2009). Moreover, the performance effect of exploration usually
occurs over the long run (Uotila, Maula, Keil, & Zahra, 2009). However,
stock market performance is normally a short-term performance in-
dicator in our research context. Consequently, we expect a negative
5
International Business Review 29 (2020) 101707
relationship between exploration-oriented acquisition and stock market
performance.
In addition, certain studies on risk-return relationship indicate that
risk may reduce the subsequent performance of firms (Bromiley, 1991;
Miller & Bromiley, 1990). These studies do not carefully identify the
source of risk but provide supporting evidence. In our research context,
because exploration-oriented acquisitions are riskier than exploitation-
oriented acquisitions in several respects (Nemanich & Vera, 2009), we
argue that high-risk exploration-oriented acquisitions can lead to poor
acquisition performance.
Hypothesis 1. Compared with exploitation-oriented acquisitions,
exploration-oriented acquisitions tend to have worse stock market
performance.
2.4. Slack resources
Although exploration-oriented acquisitions are risky and may lead
to poor stock market performance, many firms still choose to do ex-
ploration-oriented acquisitions. Capable acquiring firms can reduce the
risk of exploration-oriented acquisition through several methods. We
argue that retaining high-level slack resources is one method.
Slack resources are those that firms have in amounts over and above
those required for survival. These resources also allow firms to pursue
growth strategies during a given planning cycle (Nohria & Gulati, 1996;
Voss, Sirdeshmukh, & Voss, 2008). In addition, these resources facil-
itate strategic behaviors, such as innovation (Bourgeois, 1981). The
behavioral theory of firms suggests that increased organizational re-
sources allow experimentation and organizational change (Cyert &
March, 1963). Slack resources (e.g., underutilized capacity, employees,
opportunities, and financial resources) function as an important “buffer
zone” when firms engage in high-risk activities, such as acquisition
(Iyer & Miller, 2008). Consequently, we argue that firms with abundant
resources, especially abundant slack resources, can deal with un-
expected risks during the process of exploration-oriented acquisition in
a timely and effective manner and thus have a positive effect on ac-
quisition performance.
Furthermore, slack resources may help reduce integration risk
during post-acquisition integration. In exploration-oriented acquisi-
tions, acquiring and target firms are quite different in terms of tech-
nology, product, or business. These differences can cause difficulties
during the knowledge transfer and inter-organizational learning pro-
cess. However, firms with slack resources can deal with such difficulties
because extra resources buffer losses from failure (Geiger & Makri,
2006). In addition, Lin, Liu, and Cheng (2011) suggest that exploration
is likely influenced by environmental fluctuations or uncontrollable
contingencies. Slack resources can help absorb those environmental
fluctuations and external shocks that may lower productivity and harm
performance (Lavie et al., 2010). Thus, the risk inherent in exploration-
oriented acquisitions can be reduced, and the performance can be en-
hanced.
Given the importance of slack resources during and after acquisi-
tions, we argue that when acquiring firms have high-level slack re-
sources, the negative effect of high-risk exploration-oriented acquisi-
tions on performance is mitigated.
Hypothesis 2. The relationship between exploration-oriented
acquisition and stock market performance is positively moderated by
acquiring firms’ level of slack resources.
2.5. Equity share
Selecting the right level of equity share is important in M&A
transactions. For exploration-oriented acquisitions, which are risky and
must often pay further attention to the transfer of tacit knowledge or
core technology, controlling the whole acquisition process becomes
Z. Zhang, et al.
important. In this study, we argue that acquiring firms must take a large
equity share to obtain favorable outcomes in exploration-oriented ac-
quisitions. A large equity share gives acquiring firms additional control
over the operations and business of target firms (Filatotchev, Stephan,
& Jindra, 2008). Acquiring firms can be actively involved with target
firms in terms of resolving disputes, coordinating actions, carrying out
innovations, or revising strategies (Davidson, 1982). Thus, resistance
from target firms may be reduced, and the risk inherent in exploration-
oriented acquisitions can be mitigated.
Moreover, the control generated by a large equity share frees ac-
quiring firms to flexibly deploy resources (e.g., patents and experts),
thus enhancing their chances of success (Johnson & Tellis, 2008).
Specifically, acquiring firms can redeploy employees within target firms
and even send their own employees to target firms. By doing so, ac-
quiring firms can secure the communication and knowledge transfer
between themselves and target firms, thereby creating more value for
acquiring firms. Gaffney, Karst, and Clampit (2016) also find that a
large equity share enables acquiring firms to have enough control over
the assets (especially intangible assets) of target firms. This control may
facilitate the transfer of tacit knowledge and capabilities.
Controlling the opportunistic behavior of foreign targets is critical
in exploration-oriented acquisitions. Because acquiring firms often
know little about the technologies or businesses of target firms, and
target firms may resist sharing their core technology and critical
knowledge. Previous literature suggests that firms can prevent partner
opportunism by strengthening ownership and control over their FDI
(Brouthers, 2002; Makino & Neupert, 2000). Therefore, if acquiring
firms can acquire a large equity share in target firms, then acquiring
firms can safeguard their investments against partner opportunism
(Lien & Filatotchev, 2015) and obtain high returns (Anderson &
Gatignon, 1986). Thus, we propose that, in exploration-oriented ac-
quisitions, acquiring firms can create value by taking a large equity
share of target firms.
Hypothesis 3. The relationship between exploration-oriented
acquisition and stock market performance is positively moderated by
the equity share level of acquiring firms.
2.6. Industry relatedness
Related acquisitions are characterized by target firms being in the
same industry or business as acquiring firms (Malhotra, Sivakumar, &
Zhu, 2011). Several previous studies examine the performance of re-
lated acquisitions and find that related acquisitions lead to significant
positive abnormal returns (Barai & Mohanty, 2014). Compared with
acquiring firms that operate in a totally unrelated industry, acquiring
firms in a related industry are more familiar with target firms’ re-
sources, technologies, capabilities, products, and business (Hussinger,
2010; Montgomery & Hariharan, 1991). The past learning of acquiring
firms may also be easily translated into new situations in related ac-
quisitions. Thus, acquiring firms often perceive acquisitions in the same
or related industry as less risky than acquisitions in a completely un-
related industry.
Moreover, we argue that when acquiring and target firms are in
related industries, the risk of exploration-oriented acquisitions can be
alleviated, and potential gains can be larger. The reason is that ac-
quiring firms are familiar with the situation of target firms and the
industry (Lee & Lieberman, 2010). Acquiring firms also have many
channels, such as partners, suppliers, customers, and industrial asso-
ciations, to learn about target firms. Such familiarity leads to an en-
hanced ability to judge target firms’ assets and an efficient evaluation of
such firms (Reuer, Tong, & Wu, 2012), thereby reducing the risk of
exploration-oriented acquisitions. Furthermore, acquiring firms can
quickly adapt to the operation and management of target firms in a
related industry. Therefore, acquiring firms can make the best out of
opportunities on the basis of new technologies or skills obtained from
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International Business Review 29 (2020) 101707
target firms. In this situation, the negative effects of exploration—high
risk and uncertainty—are reduced. Acquiring firms can also benefit
more from exploration-oriented acquisitions than from exploitation-
oriented acquisitions.
However, if acquiring and target firms are in unrelated industries,
the negative effect of exploration-oriented acquisitions on performance
can be severe due to weak information about the situation of target
firms and the market. Such information asymmetry may make ac-
quiring firms face high monitoring costs and further difficulties enga-
ging in post-acquisition governance activities (Kang & Kim, 2010).
Thus, acquiring firms fail to control the opportunistic behavior of target
firms and guarantee the value creation of exploration-oriented acqui-
sitions.
Hypothesis 4. The relationship between exploration-oriented
acquisition and stock market performance is positively moderated by
the level of industry relatedness between acquiring and target firms.
3. Methodology
3.1. Description of sample and data
In this study, we develop a multilevel model to investigate the effect
of exploratory/exploitative motive on acquisition performance. M&A
data are collected from the Thomson Reuters SDC database. This da-
tabase collects information about cross-border M&As from multiple
sources, including newspapers, press releases, trade publications, pro-
prietary surveys, and law firms. China is a good example of an emerging
economy. In recent years, the number of Chinese firms that have en-
gaged in outward FDI has increased rapidly. More Chinese firms have
begun to learn advanced technologies and conduct business in foreign
markets. Many newspaper items and other reports about acquisitions by
Chinese firms have also reported on Chinese firms exploring new
technologies and markets in other countries. These acquisition cases
provide us with good scenarios for studying the effect of exploration/
exploitation motives on acquisition performance.
The sample in this study comprises cross-border M&As conducted by
Chinese firms during the period 2000–2015. We choose this period
because of three reasons. First, the Asian financial crisis started from
1997 to 1999. During this period, the economic environment of Asian
countries was unstable. In the year 2000, economies in Asia began re-
covering, and the economic environment started improving. Second,
China introduced various reforms during the final stage of entry ne-
gotiations in the late 1990s to prepare for the accession to the World
Trade Organization (WTO). In 2000, a year before its entry, the
Ministry of Foreign Trade and Economic Co-operation reviewed over
1400 laws and regulations and signed 191 bilateral agreements, 72
bilateral investment treaties, and 93 tax treaties (Chan, 2004). Since
2000, the development of China has entered a new stage because of the
active preparation for the accession to WTO. Chinese firms experienced
strong and relatively stable growth, providing ample cases of cross-
border M&As conducted by different types of Chinese MNEs. Third, the
year 2015 is an important point of time in China. The Asian Infra-
structure Investment Bank (AIIB) started operation on December 25,
2015. President Xi Jingping believes that the construction of AIIB can
help boost global and regional economic cooperation and promote the
common development of all countries around the world, thereby em-
bodying a milestone in Chinese history. Thus, we perceive that China
entered a new phase in 2016. Considering this perception, we focus on
the period 2000–2015, during which the institutional environment of
Chinese firms was relatively stable and without significant changes or
reforms.
In addition, only transactions involving publicly listed acquiring
firms are used because only these firms have stock market performance
data. Financial and stock market data are collected from the WIND
database. Targets located in tax havens are excluded. The final sample
Z. Zhang, et al.
includes 477 M&As, involving target firms located in 52 different
countries.
3.2. Measures
3.2.1. Dependent variable
The dependent variable in this study is cumulative abnormal re-
turns (CAR). To calculate CAR, first of all, we need to estimate the
normal return of stock i. For each stock i, the market model assumes
that the returns generated are given by:
R it = i + i Rmt + it (1)
In Eq. (1), Rit is the return on stock i for day t. Rmt is the return on
the market portfolio for day t. εit is the error term. Based on the previous
literature (McNamara et al., 2008), the estimation period used in Eq.
(1) is 250 days, measured from 295 days before each acquisition to 45
days before it. The estimation period is set at 250 days because one year
of trading days, a commonly used estimation period, is approximately
250 days.
From Eq. (1), we get αi which is the firm-specific constant for stock
i. We can also get βi, beta of stock i, which is a firm-specific coefficient
for stock i and represents the non-diversifiable risk during the estima-
tion period.
Second, the abnormal return due to the acquisition on a given day is
calculated based on the following formula:
AR= R it ( i + i Rmt ) (2)
In Eq. (2), Rit is the return on stock i for day t. Rmt is the return on
the market portfolio for day t. αi is the constant for stock i, which is
estimated from Eq. (1). βi, beta of stock i, is also estimated from Eq. (1).
In this equation, t = 0 means the event day.
To determine the influence of acquisition on an acquiring firm, we
compute abnormal returns from the three trading days before to the
three trading days after the announcement of the acquisition event,
which is a window commonly used for measuring the performance of
acquisitions (Finkelstein & Haleblian, 2002; Haleblian, Kim, &
Rajagopalan, 2006).
Third, based on the following formula, CAR is calculated as the sum
of daily abnormal returns during the time window (-3, +3):
+3
CAR i = ARit
(3)
3
We use data collected from the Chinese stock exchanges, which
were established by China in 1990. In the past few years, the Chinese
stock market has experienced great evolution and reformation, such as
the market capitalization of listed companies and the introduction of
the Securities Law. Even though China is not a market-oriented
economy judged by Western standards, it has made significant strides
(Gaur et al., 2013). As the Chinese stock market matures and regulatory
institutions become stronger, the overall quality of the Chinese stock
market is improving (Miller, Li, Eden, & Hitt, 2008). More studies are as
a result using Chinese stock market data for analysis (Chen & Young,
2010; Gaur et al., 2013). Furthermore, compared with some financial
indicators, we believe that CAR is more reliable than accounting-based
performance measures such as ROA, ROE, or ROS, which are easily
manipulated by publicly listed companies in China’s transition
economy (Ma, Yao, & Xi, 2006). Therefore, the Chinese stock market is
a good context for our study. It is not only a suitable data source, but
also offers the possibility of identifying distinctive emerging-market-
related factors.
3.2.2. Independent variable
The main independent variable in this paper is exploration-or-
iented acquisition (versus exploitation-oriented acquisition),
which is used to measure the motive of acquisition. In this study, we
7
International Business Review 29 (2020) 101707
code exploration-oriented/exploitation-oriented acquisition through
content analysis.
When Chinese publicly listed firms engage in mergers and acquisi-
tions, they are required to release a public announcement that includes
information about the target firm, the transaction, the motive for ac-
quisition, and the influence of the acquisition on the acquiring firm. In
addition, the Thomson Reuters SDC database also provides information
about the motive for acquisition. Therefore, we code the motive for
acquisition based on these two sources of information.
To do content analysis, we follow Uotila and colleagues (2009) to
create a list of words to operationalize exploratory versus exploitative
acquisition orientation. The list of words is based on the definitions of
exploration and exploitation provided by March (1991). Words like
“explore”, “search”, “risk”,“experimen”, “discover”, and “innovate” are
used to define exploration-oriented acquisition. In an exploration-or-
iented acquisition, we focus on whether the acquiring firm aims at
acquiring new knowledge, capabilities, skills, or technologies. It is not
necessary for new products or businesses to be generated. Words like
“exploit”, “refine”, “implement”, and “efficient” are used to define ex-
ploitation-oriented acquisition. A full list of the words we use to iden-
tify exploration-oriented and exploitation-oriented acquisition is pre-
sented in Appendix A.
Following Uotila and colleagues (2009), in this study, the variable
for exploration-oriented acquisition (vs. exploitation-oriented acquisi-
tion) is calculated by dividing the number of exploratory words by the
sum of exploratory and exploitative words. Thus, the measure for ex-
ploration-oriented acquisition, EA, is a percentage, which ranges from 0
to 1. If this variable is coded as 1, it means that the focal acquisition is
purely exploration-oriented. If this variable is coded as 0, it means that
the focal acquisition is purely exploitation-oriented. Otherwise, the
motive of the focal acquisition is ambidextrous.
During content analysis, we encountered several public announce-
ments that did not clearly report acquiring firms’ aims, because it is
difficult to distinguish these aims based on only one or two sentences.
We have excluded these M&As, which reduces the sample size to 477.
We must point out that because of data limitations, we cannot de-
velop a capability-based or innovation-based measure. Thus, we focus
on the strategic intent of acquiring firms as reported in public an-
nouncements. We believe that the strategic intent of firms can reflect
their risk preference and directly guide firms’ strategic behavior, such
as resource allocation, learning, and knowledge transfer. Public an-
nouncements are also the main avenue by which stock market investors
learn about acquiring firms’ foreign investment decisions. Thus, they
have significant impact on stock market investors, which will be re-
flected in stock market performance.
3.2.3. Moderators
Slack resources are classified into two types, low-discretion and
high-discretion. Low-discretion slack resources are calculated by debt-
to-equity ratio. High-discretion slack resources are calculated by the
ratio of cash and marketable securities to liabilities (George, 2005). The
measure of low-discretion slack captures its hard-to-redeploy nature,
whereas the measure of high-discretion slack focuses on free cash flow
at the discretion of managers. This measurement of slack resources is
widely accepted in the literature (Lin et al., 2011; Sharfman, Wolf,
Chase, & Tansik, 1988). Equity share is coded as 1 if the acquiring firm
acquires more than 51% of the target firm’s shares, which means that
the acquiring firm is a controlling shareholder of the target firm.
Otherwise, we code it as 0. Following previous literature (Malhotra
et al., 2011), we code Relatedness based on SIC codes. If the acquirer
and target have the same 4-digit SIC code, we code it as 3. If the ac-
quirer and target have the same 3-digit SIC code, we code it as 2. If the
acquirer and target have the same 2-digit SIC code, we code it as 1.
Otherwise, we code it as 0.
Z. Zhang, et al.
3.2.4. Control variables
We control for a number of other factors concerning the acquirer,
target, and acquisition transaction that might be relevant for acquisi-
tion performance. The first control variable is experience. This is be-
cause experience is one important factor when studying M&As, which
can influence acquisition performance (Haleblian et al., 2006;
Hayward, 2002). If the acquiring firm has performed a cross-border M&
A in the previous year, we code EXPERIENCE as 1, and otherwise 0.
Second, large firms with disaggregate decision-making units may bal-
ance dual emphases on exploration and exploitation more effectively
(Benner & Tushman, 2003). They may also have more resources than
small and medium-sized firms and thus can better cope with the risk in
an acquisition. We therefore control the size of acquiring firms (AC-
SIZE), which is calculated by the natural logarithm of the acquiring
firm’s total assets. Third, because state-owned companies often have
more abundant resources than private firms, they may have more ad-
vantages in an acquisition. Moreover, state-owned companies are under
the control of government officials, and government involvement may
influence the corporate decision-making process (Chen & Young, 2010).
We therefore control for government involvement. If the acquiring firm
is a state-owned company, ACSOE is coded as 1, and otherwise 0.
Fourth, scholars have found that the involvement of an advisor can
reduce acquisition risk (Angwin, 2001; Benou, Gleason, & Madura,
2007). Acquisition advisors tend to be involved in multiple acquisitions,
so their extensive experience helps acquiring firms develop a more
comprehensive understanding of the target, and thus reduces the risk
and uncertainties during acquisition. Thus, we control the effect of
advisor. ACADVISOR is coded as 1 if the acquirer has an advisor during
the acquisition transaction, and otherwise 0. Fifth, we control the
performance of acquiring firms in the past year. If acquiring firm’s sales
growth rate is positive in the past year, we code ACGROWTH as 1, and
otherwise 0. Sixth, if the target is a high-tech firm, the transaction may
be riskier. We therefore control whether the target firm is in the high-
tech industry. If it is, we code TARHITECH as 1, and otherwise 0. Se-
venth, we control whether the target firm is a publicly listed firm. If a
target firm is publicly listed, we code TARPUBLIC as 1, otherwise 0.
Eighth, compared with a hostile acquisition, a friendly acquisition often
meets less resistance from employees in the target firm (Weir & Laing,
2003). We believe the level of resistance will influence acquisition
performance, and therefore control for attitude. ATTITUDE is coded as
1 if the acquisition is friendly, and otherwise 0. Ninth, a high level of
industry risk can lead to uncertainties in value creation, so we control
the risk level of the target industry. RISK is calculated by the standard
deviation of returns for the target industry (Fama & French, 1997). Data
on industry returns are obtained from Fama & French industry portfo-
lios.1 Tenth, we control whether the target firm is located in a devel-
oped country (Geleilate, Magnusson, Parente, & Alvarado-Vargas,
2016). If it is, we code TARDEVELOP as 1, and otherwise 0. Eleventh,
because cultural distance is a widely studied factor which can influence
the risk level in cross-border M&A (Dikova & Sahib, 2013; Stahl &
Voigt, 2008), we include cultural distance as a control variable. Hof-
stede’s data on six dimensions of cultural distance are used to calculate
CULTUREDIS. Twelfth, we control the geographic distance (GEODIS)
between home and host country (Chakrabarti & Mitchell, 2016). Fi-
nally, we control the effect of the 2008 financial crisis, and code YEAR
as 1 if the acquisition took place after 2008, and otherwise 0.
The names, definitions, and data sources of all variables are given in
Table 2.
3.3. Analytical methods
To empirically test the effect of different motives on acquisition
1
Data source: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/
data_library.html.
8
International Business Review 29 (2020) 101707
performance, we specify a model that includes exploratory/exploitative
motive and several firm-level and industry-level moderators. In this
study, robust regression is adopted to test the theoretical model.
To verify the validity of our model, we test for multicollinearity
among the variables. In the regression model, we centralize all the
explanatory variables. We also calculate the variance inflation factor
(VIF) in the regression models (Kleinbaum, Kupper, Nizam, &
Rosenberg, 2013). The VIF values of the models are all smaller than 10,
which indicates that they do not suffer from severe multicollinearity.
4. Results and findings
The summary statistics of all variables and their correlations are
presented in Table 3. The cumulative abnormal return is 0.010. On
average, the stock market performance of cross-border M&As is posi-
tive. We also observe that correlations between other variables are all
below the commonly used cut-off threshold of 0.7, suggesting that
multicollinearity is not a severe problem in any of the models.
We present the descriptive statistics of the subsamples in Table 4.
We divide the full sample into three subsamples: exploration-oriented,
exploitation-oriented, and ambidextrous acquisitions. In this table, we
use (-3, +3), (-5, +5), (-7, +7), and (-10, +10) CAR as performance
measures. The results show that, when we use different measures of
acquisition performance, the average returns for exploration-oriented
acquisitions are consistently negative and the average returns for ex-
ploitation-oriented acquisitions are consistently positive. However, for
ambidextrous acquisitions, the returns are unclear.
We present the findings for acquisition motive and acquisition
performance in Table 5. Model 1 is the baseline model. Model 2 in-
corporates the effects of acquisition motive on acquisition performance.
In Models 3, 4, and 5, we add three different interaction terms. Model 6
in the last column is the full model with all the variables and interaction
terms. All the models have higher R-squared than the baseline model,
which indicates that the independent variables contribute increased
explanatory power. In addition, theVIF of all six models is less than 10,
which indicates that the analysis does not suffer from multicollinearity.
As Model 2 in Table 5 shows, after including all control variables,
that exploration-oriented acquisition is negatively associated with (-3,
+3) cumulative abnormal returns (β=-0.029, p < 0.05). This finding
indicates that, all other things being equal, exploration-oriented ac-
quisition has worse performance than exploitation-oriented acquisition.
Thus, Hypothesis 1 is supported.
In Model 3, we include the first firm-level moderator, slack re-
sources. Slack resources are divided into two types, high-discretion and
low-discretion. We add these two variables to Model 3. The interaction
between exploration-oriented acquisition and high-discretion slack re-
sources is positive and significant (β = 0.023, p < 0.05). However, the
interaction between exploration-oriented acquisition and low-discre-
tion slack resources is not significant (β=-0.002, p > 0.1). Hypothesis
2 is thus partially supported. High-discretion slack resources positively
moderate the relationship between exploration-oriented acquisition
and acquisition performance. When engaging in exploration-oriented
acquisition, firms with abundant high-discretion slack resources have
better performance. However, low-discretion slack resources do not
have any impact on the relationship between exploration-oriented ac-
quisition and acquisition performance.
In Model 4, we add the second moderator, equity share, to the re-
gression model. As expected, the findings provide support for
Hypothesis 3. The interaction term is positive and significant (β =
0.046, p < 0.1). Therefore, the relationship between exploration-or-
iented acquisition and acquisition performance is significantly and
positively moderated by high level of equity share.
In Model 5, we add an industry-level moderator, industry related-
ness, to the regression model. The coefficient of the interaction term in
Model 5 is positive and significant (β = 0.034, p < 0.01). The result
supports Hypothesis 4. In exploration-oriented acquisition, a higher
Z. Zhang, et al. International Business Review 29 (2020) 101707

Table 2
Name, description, and data source of variables.
Variable name Abbreviation Description Data source

(-3, +3) cumulative abnormal returns (-3, +3) CAR The sum of daily abnormal returns during the time window (-3, +3). An Chinese stock exchanges
abnormal return is the difference between the actual return of a stock and its
expected return.
Exploration-oriented acquisition (versus EA Calculated by dividing the number of exploratory words by the sum of Public announcements & SDC
exploitation-oriented acquisition) exploratory and exploitative words.
High-discretion slack resources H-discretion slack Calculated by the ratio of cash and marketable securities to liabilities. WIND & CSMAR
Low-discretion slack resources L-discretion slack Calculated by debt-to-equity ratio. WIND & CSMAR
Equity share Equity share Whether the acquiring firm acquires more than 51% share of the target firm. SDC
Industry relatedness Relatedness The level of relatedness between the industries of the acquiring and target SDC
firm.
Acquisition experience EXPERIENCE Whether the acquiring firm has performed a cross-border M&A in the SDC
previous year.
Firm size of the acquiring firm ACSIZE The natural logarithm of the acquiring firm’s total assets. WIND & CSMAR
State-owned acquiring firm ACSOE Whether or not the acquiring firm is a state-owned firm. SDC
Acquiring firm’s advisor ACADVISOR Whether or not the acquiring firm has an advisor during the acquisition SDC
transaction.
Growth of the acquiring firm ACGROWTH Whether or not the acquiring firm experienced a growth in sales in the WIND & CSMAR
previous year.
Target in high-tech industry TARHITECH Whether or not the target firm is in a high-tech industry. SDC
Publicly listed target firm TARPUBLIC Whether or not the target firm is a publicly listed firm. SDC
Acquisition attitude ATTITUDE Whether or not the acquisition attitude of the target firm is friendly. SDC
Industry risk of the target firm RISK The level of industry risk for the target firm to operate in the market. Fama & French industry
portfolios
Target firm in a developed country TARDEVELOP Whether or not the target firm is located in a developed country. SDC
Cultural distance CULTUREDIS The cultural difference between the home country and the host country. Hofstede
Geographic distance GEODIS The geographic distance between the home country and the host country. CEPII
The year that the financial crisis occurred YEAR Whether the acquisition occurred after 2008. SDC

level of relatedness can lead to better acquisition performance.
In Model 6, the results show that Hypotheses 1, 3, and 4 are sup-
ported. The moderating effect of low-discretion slack resources is still
insignificant in the full model. Hypothesis 2 is thus partially supported.
5. Discussion
This study investigates the stock market performance of explora-
tion-oriented and exploitation-oriented acquisition. In contrast to the
extensive literature analyzing traditional acquisition motives, such as
resource-seeking or market-seeking, this paper studies the motive of
acquisition from the perspective of exploration and exploitation.
Specifically, we define and distinguish between three kinds of acquisi-
tion: exploration-oriented, exploitation-oriented, and ambidextrous
acquisition. Exploration-oriented acquisitions aim at discovering and
developing new knowledge, technologies, and capabilities, while ex-
ploitation-oriented acquisitions aim at strengthening existing technol-
ogies and skills. Some acquisitions are both exploration-oriented and
exploitation-oriented, which we call ambidextrous acquisitions. Such a
classification links the organizational learning literature and cross-
border M&A literature. Firms can use different types of acquisition to
introduce different types of knowledge. Firms that focus on developing
novel knowledge and entering a new learning cycle tend to use ex-
ploration-oriented acquisitions. Firms that focus on refining existing
knowledge and consolidating the current learning process prefer ex-
ploitation-oriented acquisitions.
First, this research directly complements Choi and McNamara’s
(2018) study. Choi and McNamara (2018) considered the degree of
exploration and exploitation at the firm level. They found that the prior
exploitation or exploration orientation of acquiring firms can influence
their knowledge leverage behavior. Choi and McNamara (2018) also
clearly pointed out that the degree of exploration or exploitation can
vary at the acquisition-deal level, and firms may differ in their acqui-
sition purposes (explorative or exploitative), which require further re-
search in the future. This study follows their requirements and in-
vestigates exploration-oriented (explorative) and exploitation-oriented
(exploitative) acquisitions at the deal level and goes one step further to
investigate their performance implications. Our results show that the
difficulties and risks caused by exploration can make investors worry
about the value return of exploration-oriented acquisitions, thereby
leading to the decline of stock market performance. Moreover, the
findings help address the inconsistency of past research findings on the
short-term stock market performance of M&As conducted by emerging
market MNEs.
Second, this study complements the seminal study by March (1991)
in several respects. March (1991) found a trade-off between exploration
and exploitation, and this present study shows similar results in the
context of M&As. We find that most acquisitions in our sample are
exploration- or exploitation-oriented, whereas only approximately 30%
are ambidextrous. As exploration and exploitation compete for scarce
resources, pursuing both at the same time is difficult for firms. More-
over, March (1991) pointed out that his results can be extended to a
further open system. He thus considered personnel turnover and en-
vironmental turbulence. Following his view, we argue that exploration
and exploitation are not activities that can only occur within firms’
boundaries. Internal R&D is not the only way to innovate technology or
products. Firms can also use external sources, such as mergers and
acquisitions, to refine and extend existing paradigms or introduce new
technologies. Organizations not only learn from their members but also
from outsiders. Therefore, this study contributes to March’s (1991)
work by examining the external sources of exploration and exploitation.
We find that except for individual-level turnover or environmental-level
turbulence, which have been studied by March (1991), firm-level fac-
tors, such as slack resources and level of equity share, also help explain
the role of exploration and exploitation in affecting firm performance.
Third, we find that the short-term stock market performance of
exploration-oriented acquisitions is worse than that of exploitation-or-
iented acquisitions. In exploration-oriented acquisitions, the acquisition
of new knowledge, technical skills, or products creates tensions be-
tween old and new routines. Acquiring firms often lack knowledge
about target firms and the target industry. As a result, acquiring firms
have difficulty dealing with tensions and related organizational
changes. The risk of exploration-oriented acquisitions is thus much
higher than that of exploitation-oriented acquisitions, which can lead to
high-level uncertainty in realized value for acquiring firms. The results
indicate that acquiring firms must be cautious about the risks and

9
Z. Zhang, et al. International Business Review 29 (2020) 101707

Table 3
Descriptive statistics and correlation table.
Mean S.D. 1 2 3 4 5

1.(-3, +3)CAR 0.01 0.09 1

2. EA 0.18 0.29 −0.09* 1
3.H-discretion slack 1.21 6.03 −0.02 −0.04 1
4. L-discretion slack 1.99 4.01 −0.01 −0.00 −0.09† 1
5.Equity share 0.60 0.49 0.07 0.01 −0.06 −0.07 1
6.Relatedness 1.16 1.33 0.01 −0.06 −0.03 0.14** −0.02
7.EXPERIENCE 0.35 0.48 0.03 −0.12* −0.02 0.05 −0.07
8.ACSIZE 23.53 2.34 −0.05 −0.15** −0.12** 0.57** −0.14**
9.ACSOE 0.44 0.50 −0.03 −0.10* −0.14** 0.12** −0.08†
10.ACADVISOR 0.23 0.42 0.03 −0.04 −0.06 0.17** −0.01
11.ACGROWTH 0.28 0.98 0.08† 0.05 −0.05 0.03 −0.04
12.TARHITECH 0.17 0.38 −0.03 0.14** 0.16** −0.14** −0.09†
13.TARPUBLIC 0.17 0.37 −0.00 −0.02 0.08† 0.24** −0.30**
14.ATTITUDE 0.93 0.25 0.01 0.03 0.03 −0.02 0.13**
15.RISK 1.52 0.89 0.00 −0.08† −0.03 0.01 −0.10*
16.TARDEVELOP 0.59 0.49 0.05 0.05 0.08† −0.06 0.09*
17.CULTUREDIS 2.45 1.57 0.05 −0.00 0.03 −0.08† 0.04
18.GEODIS 8.62 0.75 0.05 0.03 0.09† −0.02 0.08†
19.YEAR 0.87 0.33 0.05 −0.11* 0.06 −0.09† −0.02

6 7 8 9 10 11 12
6.Relatedness 1
7.EXPERIENCE 0.17** 1
8.ACSIZE 0.15** 0.35** 1
9.ACSOE 0.07 0.19** 0.50** 1
10.ACADVISOR 0.05 0.14** 0.41** 0.25** 1
11.ACGROWTH −0.03 −0.04 −0.02 −0.04 −0.06 1
12.TARHITECH 0.13** −0.06 −0.26** −0.23** −0.14** 0.09* 1
13.TARPUBLIC 0.09* 0.10* 0.20** 0.11* 0.23** −0.00 0.03
14.ATTITUDE −0.06 0.01 0.00 −0.11* 0.05 −0.01 −0.01
15.RISK 0.04 0.17** 0.13** 0.27** 0.07 −0.05 −0.15**
16.TARDEVELOP 0.05 −0.01 −0.16** −0.07 −0.08† −0.06 0.06
17.CULTUREDIS 0.08† 0.01 −0.09* −0.05 −0.08† −0.07 0.03
18.GEODIS 0.08† 0.07 −0.05 −0.00 −0.03 −0.08† 0.00
19.YEAR 0.07 0.08† −0.06 −0.15** −0.08† −0.06 0.01

13 14 15 16 17 18 19
13.TARPUBLIC 1
14.ATTITUDE −0.14** 1
15.RISK 0.19** −0.07 1
16.TARDEVELOP −0.01 0.14** 0.06 1
17.CULTUREDIS −0.06 0.14** 0.06 0.67** 1
18.GEODIS −0.07 0.08† 0.10* 0.66** 0.65** 1
19.YEAR −0.01 0.02 0.09* 0.06 0.05 0.08† 1

N = 477.
Significance levels: **p < 1%, *p < 5%, †p < 10%.

Table 4
Descriptive statistics of subsamples.
Mean Full sample Exploration-oriente acquisitions Exploitation-oriente acquisitions Ambidextrou acquisitions

(-3, +3) CAR 0.010 −0.013 0.014 0.005

(-5, +5) CAR 0.008 −0.006 0.011 0.002
(-7, +7) CAR 0.005 −0.009 0.010 −0.003
(-10, +10) CAR 0.003 −0.020 0.009 −0.005

uncertainties caused by new technology or business exploration when
engaging in exploration-oriented acquisitions. For risk-averse multi-
national firms that want to expand into the global market, pursuing
exploitation-oriented acquisitions is a good way to reduce risk and
ensure positive gain.
Fourth, the findings indicate that stock market investors can dis-
tinguish among firms’ different strategic orientations. From these stra-
tegic orientations, they form their own opinion of focal firms’ future
prospects and make their investment decisions. In addition, we can
infer that Chinese stock market investors are risk-averse and short-term-
oriented, as they prefer exploitation-oriented acquisitions, which have
certain results and quick returns. Rather than focusing on long-term
decision making, Chinese stock market investors are impatient and
want immediate returns. Therefore, when doing something risky and
uncertain, decision makers must consider the characteristics of these
investors.
Fifth, although exploration-oriented acquisitions often lead to ne-
gative performance, acquiring firms can mitigate the risks that come
from exploration. In this study, we find that high-discretion slack re-
sources can help reduce the risks caused by exploration. Slack resources
function as a “buffer zone” for firms when they engage in high-risk
exploration-oriented acquisitions. Acquiring firms with abundant high-
discretion slack resources can deal with unexpected risks during the
acquisition process. During exploration-oriented acquisitions, firms
with high-discretion slack resources thus have better performance.
However, low-discretion slack resources do not significantly moderate

10
Z. Zhang, et al. International Business Review 29 (2020) 101707

Table 5
Estimation results.
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Exploration-oriented acquisition −0.029* −0.045** −0.056* −0.067** −0.107**

(0.014) (0.017) (0.022) (0.018) (0.026)
High-discretion slack −0.001 −0.001
(0.001) (0.001)
Low-discretion slack 0.002 0.002
(0.002) (0.002)
Equity share 0.003 0.001
(0.010) (0.010)
Relatedness −0.005 −0.006
(0.004) (0.004)
H-discretion slack ☓ EA 0.023* 0.018†
(0.010) (0.010)
L-discretion slack ☓ EA −0.002 −0.003
(0.004) (0.004)
Equity share ☓ EA 0.046† 0.051†
(0.028) (0.028)
Relatedness ☓ EA 0.034** 0.032**
(0.011) (0.011)
EXPERIENCE 0.009 0.008 0.009 0.008 0.007 0.009
(0.009) (0.009) (0.009) (0.009) (0.009) (0.009)
ACSIZE −0.003 −0.004 −0.005† −0.003 −0.004† −0.006†
(0.002) (0.002) (0.003) (0.002) (0.002) (0.003)
ACSOE −0.002 −0.002 0.000 −0.004 0.001 0.002
(0.010) (0.010) (0.010) (0.010) (0.010) (0.010)
ACADVISOR 0.014 0.014 0.014 0.013 0.015 0.013
(0.011) (0.011) (0.011) (0.011) (0.011) (0.011)
ACGROWTH 0.008* 0.009* 0.009* 0.009* 0.009* 0.009*
(0.004) (0.004) (0.004) (0.004) (0.004) (0.004)
TARHITECH −0.012 −0.010 −0.012 −0.009 −0.013 −0.014
(0.011) (0.011) (0.011) (0.011) (0.011) (0.012)
TARPUBLIC 0.001 0.001 0.002 0.006 0.001 0.006
(0.011) (0.011) (0.012) (0.012) (0.011) (0.012)
ATTITUDE −0.001 0.000 −0.000 −0.002 −0.000 −0.003
(0.016) (0.016) (0.016) (0.016) (0.016) (0.016)
RISK −0.001 −0.001 −0.001 −0.001 −0.004 −0.004
(0.005) (0.005) (0.005) (0.005) (0.005) (0.005)
TARDEVELOP 0.003 0.004 0.004 0.003 0.003 0.002
(0.012) (0.012) (0.012) (0.012) (0.012) (0.012)
CULTUREDIS 0.002 0.001 0.002 0.002 0.001 0.002
(0.004) (0.004) (0.004) (0.004) (0.004) (0.004)
GEODIS 0.002 0.002 0.001 0.002 0.003 0.002
(0.008) (0.008) (0.008) (0.008) (0.008) (0.008)
YEAR 0.012 0.009 0.006 0.010 0.010 0.007
(0.012) (0.012) (0.013) (0.012) (0.012) (0.012)
Constant 0.052 0.062 0.106 0.058 0.072 0.119
(0.080) (0.079) (0.089) (0.080) (0.079) (0.089)
N of observations 477 477 477 477 477 477
R-squared 0.023 0.032 0.047 0.041 0.053 0.075
VIF 1.45 1.43 1.75 1.64 1.54 1.94

Dependent variable: (–3, +3) cumulative abnormal return.

Significance levels: **p < 0.01, *p < 0.05, †p < 0.1.
Standard errors are in parentheses.

the relationship between exploration-oriented acquisition and perfor-
mance. Low-discretion slack resources are absorbed in the daily op-
erations of firms; thus, such resources are difficult to reassign to new
uses (Tan & Peng, 2003) and their role in reducing risks is limited.
Moreover, our findings on slack resources extend our understanding of
organizational slack in the context of M&As. Previous studies only in-
vestigate the effect of slack resources on organizational outcomes, such
as innovation, risk-taking, and financial performance (Nohria & Gulati,
1996; Singh, 1986), without studying their effect on acquisition out-
comes in detail. To fill this gap, we consider acquisition performance,
which is measured by short-term stock market reaction. The results
indicate that slack resources, especially high-discretion slack resources,
are important in exploration-oriented acquisitions. Such resources can
reduce managerial, operational, and integration risks in exploration-
oriented acquisitions and thus lead to improved acquisition perfor-
mance.
Sixth, in exploration-oriented acquisitions, acquiring firms can
smooth the process of tacit knowledge learning and secure value
creation by obtaining high-level equity shares in target firms. The
transfer of valuable tacit knowledge is not only more important but also
more difficult than the transfer of other kinds of knowledge (Dhanaraj,
Lyles, Steensma, & Tihanyi, 2004), which generally requires extensive
personal contact, regular interaction, and trust (Berman, Down, & Hill,
2002). Large equity share means high-level control over target firms.
This share can help keep all resources (e.g., employees, technologies),
operations, and businesses under control in exploration-oriented ac-
quisitions. By doing so, acquiring firms can reduce resistance, lower
risks and uncertainties, and avoid the opportunistic behaviors of target
firms, thus leading to additional value creation. The results also help
explain why many Chinese firms want to hold a large share of target
firms or fully acquire them.
Our results also show that acquiring firms can strategically conduct
exploration-oriented acquisitions in related industries to avoid risk and
ensure value creation. In this study, we consider the level of relatedness

11
Z. Zhang, et al.
as a moderator. When acquiring firms target other firms in related in-
dustries, acquiring firms are familiar with such target firms and in-
dustries and can seize the opportunities presented by new technologies
or skills obtained from target firms. The performance of exploration-
oriented acquisitions can be improved and thus create additional value
for acquiring firms.
This study complements other research on related and unrelated
acquisitions. In previous literature, acquisitions are simply divided into
related and unrelated acquisitions, but inherent knowledge-level dif-
ferences are ignored. Related acquisitions can be exploration- or ex-
ploitation-oriented, and their performances are often different. Barai
and Mohanty (2014) found that acquisitions in related industries often
have good performance. Following their study, we further distinguish
among different kinds of acquisitions on the basis of knowledge-level
factors, thereby leading to the classification of exploration- and ex-
ploitation-oriented acquisitions. We find that exploration-oriented ac-
quisitions in related industries have better performance than exploita-
tion-oriented acquisitions. Exploration-oriented acquisitions in
unrelated industries are risky and often lead to bad performance.
Therefore, by considering knowledge- and industry-level relatedness,
we gain a comprehensive understanding of acquisitions.
Our findings are enlightening for managers attempting to acquire
knowledge from foreign targets. When conducting cross-border M&As,
the first question to answer is the aim of acquisition. Top managers
must consider whether their goal is exploration or exploitation. If
managers decide to do exploration-oriented acquisitions, then they
must recognize the accompanying risks and take action to reduce un-
certainties and ensure value creation. In this study, we emphasize that
to reduce risks in exploration-oriented acquisitions, acquiring firms
must maintain more high-discretion slack resources and gain high
ownership of target firms. Acquiring firms can also strategically choose
to acquire other firms in related industries. For risk-averse firms,
especially those with limited resources, exploitation-oriented acquisi-
tions are more suitable.
This study also suggests that managers must consider stockholders’
reaction to risk-taking activities, such as exploration-oriented acquisi-
tions. Although certain benefits of high-risk investments need time to
manifest themselves, stock market investors are not always patient. We
find that stock market investors have a negative reaction to exploration-
oriented acquisitions. Thus, in the short term, investors are sensitive to
firms’ risk-taking activities. Our findings also tell managers that when
doing something risky, they should anticipate short-term negative
performance and not be surprised by a stock price decline. Managers
should also have a rational understanding of short- and long-term ac-
quisition performances.
Our research provides theoretical contribution and managerial im-
plication. First, we complement previous research by distinguishing
between exploration and exploitation at the M&A transaction level,
namely, exploration- and exploitation-oriented M&As. The results show
that MNEs often differ in their M&A motives, and stock market in-
vestors react differently to M&As with different motives. The reason is
that these investors are worried about the risks and uncertainties in-
herent in exploration and may undervalue the return of exploration-
oriented acquisitions. Second, this study complements March’s (1991)
work by researching an open system. We argue that relying on internal
personnel or internal R&D is not the only source of knowledge gen-
eration. External sources, such as mergers, acquisitions, and alliances,
are also good ways to acquire knowledge. Third, this research further
investigates the moderating role of slack resources in affecting the re-
lationship between different acquisition motives and performances. As
a risk-taking form of activity, exploration-oriented acquisitions face
high-level uncertainties and risks. We find that acquiring firms with
abundant high-discretion slack resources can deal with unexpected
risks during the exploration-oriented acquisition and integration pro-
cess. These firms also achieve improved acquisition performance. Thus,
this study contributes a further understanding of organizational slack in
12
International Business Review 29 (2020) 101707
the context of cross-border M&As. Fourth, our results echo previous
research in finding the importance of deciding the appropriate level of
equity share. We further reveal that in the context of exploration-or-
iented acquisitions, obtaining large equity share is necessary to reduce
uncertainties and secure value creation. Fifth, this research investigates
exploration, exploitation, and relatedness in one united theoretical
framework and finds that exploration-oriented acquisitions conducted
by Chinese MNEs in related industries have good performance. Finally,
our implications for managers from multinational firms are that in the
case of risky acquisitions, such as exploration-oriented acquisitions,
managers can do many things to reduce risks, such as maintaining
abundant slack resources, choosing a target in the right industry, or
obtaining a large share of ownership.
Although this study uncovers certain intriguing findings, several
limitations are worth noting. First, scholars argue that transitions from
exploration to exploitation and vice versa may occur over time (Lavie
et al., 2010). A natural cycle of exploration–exploitation may blur the
distinction between both activities. However, only a limited number of
firms that have conducted cross-border M&As before are included due
to data limitation. Thus, we cannot longitudinally consider the effect of
exploration-oriented acquisitions on subsequent exploitation-oriented
acquisitions or the effect of exploitation-oriented acquisitions on sub-
sequent exploration-oriented acquisitions. Future research on this
phenomenon is needed, and scholars should identify its performance
implications. Second, in cross-border M&As, new knowledge and
technology may take time to apply for production and commercializa-
tion. Thus, the return of M&As may be apparent in the long term.
However, we cannot measure the long-term stock market returns in this
study due to data limitation. In future studies, we suggest scholars to
collect more data over a longer period and attempt to conduct a long-
term analysis, which can largely enrich the research findings. Third, we
use cumulative abnormal returns as an indicator of acquisition perfor-
mance, which is widely accepted in previous literature. However, the
objective for M&As can be tangible or intangible, and most of them are
not measurable on the scale of profits earned by firms or by movement
in stocks’ value (Hassan et al., 2018). Thus, future studies must focus on
the whole process of acquisition and have a comprehensive under-
standing of acquisition performance. Fourth, given the data limitations,
we can only measure relatedness by using SIC codes, which is a coarse-
grained measure. In the future, relatedness must be measured in a fine-
grained way, such as using input and output data or business- and
product-level data. Finally, the research sample is limited to China-
based acquiring firms, which may influence the generalizability of this
study. In the future, a larger and finer grained dataset should be used.
For example, data from other emerging markets, such as Brazil, Thai-
land, or Malaysia, should be collected. It will be necessary to verify the
findings of this paper in other emerging markets and to identify con-
tingent factors.
6. Conclusion
In this study, we have developed a framework to investigate the
relationship between exploration-oriented/exploitation-oriented ac-
quisition and acquisition performance. Compared with exploitation-
oriented acquisitions, exploration-oriented acquisitions often face more
challenges and higher risk. The performance of exploration-oriented
acquisitions is thus worse than the performance of exploitation-oriented
acquisitions. However, if the acquiring firm has abundant high-discre-
tion slack resources, the risks caused by exploration-oriented acquisi-
tions can be reduced. Furthermore, a high level of control over the
target firm can also reduce risk and resistance in the knowledge transfer
process, thus leading to more efficient learning and value creation. In
addition, acquiring firms can reduce risk and ensure performance by
acquiring target firms in related industries. The findings have both
theoretical and practical contributions. This paper links the literature
about exploration/exploitation and the literature about cross-border M
Z. Zhang, et al.
&As, which leads to a better understanding of exploration/exploitation
in the context of M&As and provides a new angle to study the motives of
cross-border M&As and their effect on performance. This paper also
provides scholars with new variables to explain the causes and effects of
the success of exploration- and exploitation-oriented acquisition. By
including several industry-level and firm-level moderators, this paper
also teaches managers effective ways to reduce risk when engaging in
high-risk acquisitions.
Appendix A
Table A1
Table A1
Words in content analysis.
The wildcard “*” can represent any characters
Exploration-oriented acquisition explor*, search*, variation*, risk*, experiment*, play*, flexib*, discover*, innovate*, new*, novel*, first*, transform*
Exploitation-oriented acquisition refine*, choice*, production*, efficien*, select*, execut*, integrat*, implement*, strengthen*, further*, same*, unified*, exist*, current*,
enhance*, concentrate*
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