Research and teaching

Michelle Rogan and Olav Sorenson

Numerous studies have found that mergers and acquisitions destroy value. What might account for these poor decisions? Using comprehensive data from the advertising industry, we found that the probability of being acquired rose but that the performance of merged entities declined – both losing clients and selling less to the clients retained – with the number of common clients (indirect ties) connecting the target to the acquirer. Two potential mechanisms could account for this pattern of results. Either managers hold (positively) biased beliefs about those connected to them through common clients, or they restrict their searches for potential acquisition partners to those they already know, despite the disadvantages of doing so.

Administrative Science Quarterly, 59 (2014): 301-329

Toby E. Stuart and Olav Sorenson

In this paper, we examine the ecological consequences of initial public offerings (IPOs) and acquisitions, specifically how the spatial distribution of these events influences the location-specific founding rates of new companies. We explore whether relatively small spatial units (metropolitan statistical areas) in close geographic proximity to firms that recently have been acquired or experienced an IPO exhibit high new venture creation rates and whether the magnitudes of these effects depend on regional differences in statutes governing the freedom of employees to move between employers. Count models of biotechnology firm foundings establish three findings: (1) IPOs of organizations located contiguous to or within an MSA accelerate the founding rate within that MSA, (2) acquisitions of biotech firms situated near to or within an MSA accelerate the founding rate within the MSA, but only when the acquirer enters from outside of the biotech industry, and (3) the enforceability of post-employment non-compete covenants, which is determined at the state level, strongly moderates these effects.

Administrative Science Quarterly, 48 (2003): 175-201